Rebalancing and bond funds

[COcheesehead]

Biggest problem (meaning opportunity) I have is learning how to research and pick corporate bonds.

Post a few you are considering and listen to the feedback. We did that all the time on the Fidelity forum. You’ll learn a lot.

 

[ERD50]

Our current allocation of our portfolio is:
Stock Funds - 61.1%
.... I am thinking to rebalance a bit and carve some off of the stock funds to get below 60%, since the market has recovered some lately.

Apart from the bond/fund debate, I just don't think 61.1% vs 'below 60%' (how far below?) is worth doing anything, and especially with some sort of market timing thinking driving it.

Long term portfolio results are just not very sensitive to asset allocation. Success is pretty flat all the way between ~ 35% stocks to 95% stocks. A 5 ~10% AA change is pretty meaningless. Best to invest your time elsewhere, IMO.

 

[pb4uski]

Biggest problem (meaning opportunity) I have is learning how to research and pick corporate bonds.

You don't really have to do that unless you want to. Look at the Blackrock iBond target maturity ETFs. It is like buying a participation in a pool of bonds that mature in a stated year... so the fund managers pick for you. They have corporate, Treasury, TIPS, Municipal and High Yield versions.

A 10 year corporate ladder would yield about 4.82% after ER is 0.10%.

https://www.blackrock.com/us/financial-professionals/tools/ibonds

 

[pb4uski]

...Long term portfolio results are just not very sensitive to asset allocation. Success is pretty flat all the way between ~ 35% stocks to 95% stocks. A 5 ~10% AA change is pretty meaningless. Best to invest your time elsewhere, IMO.

While you are correct that success rates (not running out of money) are similiar across a wide rage of asset allocations, that is different from portflio results.

IOW, portfolio results do differ widely across asset allocation but success rates don't. For example, using FIRECalc with default assumptions below. Note that for 50-90% stocks the success rates are similiar but the accumulated balances are significantly higher with more stocks.

• 30% stocks: success rate 88%, lowest and highest portfolio balance $-154,973 to $2,526,689, with an average at the end of $517,592
• 50% stocks: success rate 95.2%, lowest and highest portfolio balance $-167,964 to $3,108,798, with an average at the end of $873,691
• 70% stocks: success rate 96.0%, lowest and highest portfolio balance $-251,181 to $3,969,800, with an average at the end of $1,310,507
• 90% stocks: success rate 95.2%, lowest and highest portfolio balance $-507,733 to $5,193,687, with an average at the end of $1,819,473

 

[Lorenzo]

You don't really have to do that unless you want to. Look at the Blackrock iBond target maturity ETFs. It is like buying a participation in a pool of bonds that mature in a stated year... so the fund managers pick for you. They have corporate, Treasury, TIPS, Municipal and High Yield versions.

A 10 year corporate ladder would yield about 4.82% after ER is 0.10%.

https://www.blackrock.com/us/financial-professionals/tools/ibonds

I have been mulling over doing this. Blackrock even offers an ETF that is supposed to represent a ladder of their iBond ETFs: https://www.blackrock.com/us/financ...&sortColumn=totalNetAssets&sortDirection=desc

 

[pb4uski]

^^^ Interesting. I wasn't aware of those ETFs but I would rather ladder them myself so I have more control over the cash flows. Buying the laddered ETF has similar downsides to a bond fund where if you need funds you are effectively selling 20% of each rung and have no choice to do otherwise.

 

[ERD50]

While you are correct that success rates (not running out of money) are similar across a wide rage of asset allocations, that is different from portfolio results. ...

Very true. But even so, the results aren't all that sensitive to say, a 10% change in stock allocation.

As your example shows, a 20 point AA change, going from 50/50 to 70/30 gives a high end ~ 27% higher. Significant, but OP seemed to be talking about just a few points. I just wouldn't sweat it, but that's me.

BTW, I don't like to include failures in these sorts of analysis (I go with 100% success rates for comparisons), because if you study the numbers, FIRECalc appears to keep multiplying negative portfolios by the market returns. But if you are broke you are broke. You don't have a negative $100K in the market which becomes a negative $120K if the market gains 20% that year. But it sure looks like FIRECalc takes a -100 * 0.2 and reports a new portfolio of -$120K. So I try to stay out of negative portfolios for this reason.

 

[pb4uski]

I agree that if you're broke you're broke. From what I can see, each time a portfolio runs out of money then it is a failure and there are no instances where FIRECalc counts it as a success where it had previously run out of money, so I don't really see your point. If FIRECalc continues to calculate values rather than stopping once the portfolio value is below $0, what does it matter?

 

[ERD50]

I agree that if you're broke you're broke. From what I can see, each time a portfolio runs out of money then it is a failure and there are no instances where FIRECalc counts it as a success where it had previously run out of money, so I don't really see your point. If FIRECalc continues to calculate values rather than stopping once the portfolio value is below $0, what does it matter?

It only matters a little - as in my example, instead of just saying that portfolio is broke, it keeps multiplying it by market returns. That drives it even more negative (assuming the market is positive after that), and that throws the averages off.

Seems the proper thing to do, is just subtract expenses each year, showing the deficit in the portfolio. It's minor, but I just prefer to avoid it, by using a spend that just breaks 100% success.

 

[audreyh1]

I got a lot of confidence with the chatter on this forum and expanded my individual holdings beyond treasuries. It's not rocket surgery

Don’t care. Just not willing to deal with it.

 

[Dee]

Our current allocation of our portfolio is:
Stock Funds - 61.1%
Bond Funds - 25.5%
Cash - 8.3%
CDs/Tbills - 5.0%

I am thinking to rebalance a bit and carve some off of the stock funds to get below 60%, since the market has recovered some lately. I was thinking of buying straight corporate AAA bonds with the rebalance dollars. That made me look and think about my current bond fund collection and does it make sense these days. The percentages listed are my holdings in these funds as a percentage of my total holdings in Bond funds.

My current bond funds are:

FIPDX	FIDELITY INFLAT-PROT BD INDEX FUND	9.00%
FUMBX	FIDELITY SHORT TERM TREASURY BOND INDEX	7.92%
VCSH	VANGUARD SCOTTSDALE FDS VANGUARD SHORT-TERM CORPORATE BD INDEX FD ETF SHS	5.97%
FUAMX	FID INTER TREASURY BOND INDEX FUND	4.85%
VCIT	VANGUARD SCOTTSDALE FUNDS VANGUARD INTER-TERM CORP BD ETF	4.17%

Do people put money in bond funds any more? Should I consolidate these somewhat into something like BND? I was contemplating leaving the FIPDX and VCSH alone, and consolidating the other three into BND.

Your bond funds are very conservative. As a retiree, I'm sensitive to risk and dividend income, but there is also risk in not being aggressive enough. Imo, staying overly conservative is costing you money -- if that's the only way you can sleep at night, then the lost opportunity costs may be worth it. But otherwise, consider diversifying more.

Since bonds, including bond funds, are sensitive to inflation outlooks (on the rise), I would split my bets to form a 'bar bell' approach between shorter and longer durations (fund averages) and diversify into other "bond-like" assets for better yield (higher risk than gov bonds, but earn much more real yield). Outlooks for inflation to rise hurt bond prices, so while fear of inflationary forces are in the air, prices come down most on long duration bonds. Since Covid, I stay short duration on majority of holdings. Also, examine your bond holdings for "real" yield, which is after inflation, now roughly 2.3%. You should be growing your bond holdings, not just treading water.

Here are some examples:

Symbol Yield Duration/Maturity
TBIL 4.6% 3-mos gov bonds, ETF
BIL 4.7% 1-3 mos gov bonds, ETF
PGF 6.3% 9.5 yrs, corp preferreds (bond-like), ETF, mostly financials
PFN 11.9% 6 yrs, senior loans, CEF (closed end fund), 58% investment grade

Disclosure: I am not a licensed broker/dealer, just a retiree and long-term investor with 30 yrs investing under my belt. These are my educated opinions. Starting 2025, I adjusted my allocations to higher in bonds, lower in stocks: 70% bonds, 25% equities, remainder in cash.

 

[pb4uski]

It only matters a little....

I agree... it matters so little that it really doesn't matter at all.

 

[tominboise]

Post a few you are considering and listen to the feedback. We did that all the time on the Fidelity forum. You’ll learn a lot.

I used the FIdelity bond ladder tool and built a 5 year ladder with A+ and higher corporates. It presented mostly John Deere, Paccar, GE Aerospace, and a few banks. I did not include agency or other govt bonds in the ladder search.

I then compared the yields and the coupons and chose the highest, but intend to hold to maturity (unless I have some emergency, etc). I also spread among the various companies offering to diversify my risk of one folding up.

 

[ali]

Biggest problem (meaning opportunity) I have is learning how to research and pick corporate bonds.

I totally hear you as since we were fortunate enough to do all our Bucket List traveling , "toy" buying like boats, and larger eating out and socializing in our 50's & 60"s , Turning late 60's and now into early 70's I do have time to do tons of "investigating and reading everything I can on investments". Investing has sort of become my hobby for keeping me sharp! Now also fortunately for me , retiring at 57 yrs old , while my husband worked till 62 well needing to keep once again, my mind active I found "investing researching" interesting . Trust me I have made a couple of boo boos along the way (like buying JC Penney bonds) but fortunately only talking a couple of $.

 

[pb4uski]

One option that I am considering for my corporate bonds is a ladder of Blackrock iBond corporate bond target maturity bond ETFs. The control of individual corporate bonds but easier and with more diversification. I'm overweight on corporate bonds right now but as they mature may use these to make things easier for DW and DD should something happen to me.

 

[TickTock]

^ ^ ^ I'm considering this as well; not ready to make any changes yet. IF they perform as intended, it's a nice new FI tool.