Author Topic: A question of Bonds  (Read 1199 times)

politenessman

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A question of Bonds
« on: October 27, 2019, 10:58:42 AM »
I'm 54 planning to retire at 60-62
I have $120k in my 401k and its all in index funds (I know that's not enough - my wife has a much larger portfolio, but this is just a question about mine.)

I have no bonds

I know this is aggressive and it is purposely aggressive because I got a late start and I am trying to make up some time, but I do know I need to get some bonds into this mix to mitigate the fluctuations in the market.
According to the 110-age equation, I need 56% equities and 44% bonds.

Currently I have my entire 401k in FXAIX (Company has all the 401ks with Fidelity and this is the only index fund I have access to.)

So my question to the forum is this; should I start to add bonds to my 401k portfolio?
These are what I have available to me:

 MIP CL 2
 FID US BOND IDX (FXNAX)
 PGIM HIGH YIELD R6 (PHYQX)
 PIM TOTAL RT INST (PTTRX)
 TMPL GLOBAL BOND R6 (FBNRX)

I like the look of FXNAX and PHYOX

I was also looking at government I bonds, but the return seems low but I think there is a tax free component to consider here. Is this a good idea to add to my investment strategy?

What say you all?


BECABECA

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Re: A question of Bonds
« Reply #1 on: October 27, 2019, 11:34:52 AM »
If I were you, Id be looking to start building up a bond tent before you retire, so you can spend down those bonds in the first few years of retirement and not have to worry about sequence of returns risks. Itd probably be prudent to at least redistribute 10% of what you currently have into bonds, and Id put it into the Fidelity US Bond Index. No need to get fancy with individual bonds like Govt I bond since this is is in your tax deferred retirement account. And Id set all my annual contributions from now to retirement to all go into the Fidelity US Bond Index so your bond percentage builds. Ideally youll hit retirement with 4-5 years worth of annual expenses in bonds that you can spend down if you get unlucky with a bear market immediately following your retirement date.

terran

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Re: A question of Bonds
« Reply #2 on: October 27, 2019, 12:40:46 PM »
Do you keep separate finances from your wife, or are they combined? If combined then you should be considering an asset allocation across the portfolio that includes both of your accounts. If not combined, then you either have a long way to go and being high equity is reasonable, or social security or a pension will support a large part of your retirement needs and considering those as a bond would also be reasonable.

politenessman

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Re: A question of Bonds
« Reply #3 on: October 27, 2019, 02:27:40 PM »
Do you keep separate finances from your wife, or are they combined? If combined then you should be considering an asset allocation across the portfolio that includes both of your accounts. If not combined, then you either have a long way to go and being high equity is reasonable, or social security or a pension will support a large part of your retirement needs and considering those as a bond would also be reasonable.
My wife is actually the major wage earner in the house and has her own IRAs and 401k. I haven't looked at her portfolio for a while but it is certainly more balanced than mine is. We actually plan on having very in depth review at the end of this year, over the holidays. We are going to use this time to put together a strategy for 2020 in terms of both saving and spending.

This post really just focuses on my own investments and problems.
I know I needs bonds, but how much and what?

politenessman

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Re: A question of Bonds
« Reply #4 on: October 27, 2019, 02:38:35 PM »
If I were you, Id be looking to start building up a bond tent before you retire, so you can spend down those bonds in the first few years of retirement and not have to worry about sequence of returns risks. Itd probably be prudent to at least redistribute 10% of what you currently have into bonds, and Id put it into the Fidelity US Bond Index. No need to get fancy with individual bonds like Govt I bond since this is is in your tax deferred retirement account. And Id set all my annual contributions from now to retirement to all go into the Fidelity US Bond Index so your bond percentage builds. Ideally youll hit retirement with 4-5 years worth of annual expenses in bonds that you can spend down if you get unlucky with a bear market immediately following your retirement date.

I think going all bonds is probably going too far the other way, but I do think adding bonds to my regular contribution to this account is a wise idea.

https://www.millennial-revolution.com/invest/yield-shield/the-yield-shield-putting-it-all-together/
I've been studying this and this seems to make sense.

vand

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Re: A question of Bonds
« Reply #5 on: October 27, 2019, 03:02:56 PM »
The shorter your investment horizon the more conservative yout portfolio should be as the bulk of your pot will most likely be coming from your savings rather than investment returns regardless of your portfolio mix.... it's amazing how many aspiring FIREes are getting this the wrong way around.

You can't shortcut your way there just because you started late.

habanero

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Re: A question of Bonds
« Reply #6 on: October 27, 2019, 04:22:04 PM »
The shorter your investment horizon the more conservative yout portfolio should be as the bulk of your pot will most likely be coming from your savings rather than investment returns regardless of your portfolio mix.... it's amazing how many aspiring FIREes are getting this the wrong way around.

You can't shortcut your way there just because you started late.

If your portfolio is too risky (as in equity-heavy) you risk loosing a lot of money in the short run
If your portfolio is too conservative, you risk running out of money in the long run.

Buffaloski Boris

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Re: A question of Bonds
« Reply #7 on: October 27, 2019, 04:58:04 PM »
This is really a Sequence of Return Risk question. The best series Ive read on SoRR bar none is at the Early Retirement Now website. Id read that.

blue_green_sparks

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Re: A question of Bonds
« Reply #8 on: October 27, 2019, 07:57:06 PM »
This is really a Sequence of Return Risk question. The best series Ive read on SoRR bar none is at the Early Retirement Now website. Id read that.

That is a great resource. The takeaways I got are that the "order" of return rate changes matters (simple average rate over a number of years is misleading) and that one must consider the effect of inflation on withdrawal amount and principal's value.

ChpBstrd

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Re: A question of Bonds
« Reply #9 on: October 28, 2019, 09:10:19 AM »
Just rebalance. As noted earlier your balance in 8 years will be more a factor of contributions than investment gains. Getting whacked by a market correction during that time would not be ideal, especially if you got hit while agonizing over the optimal way to re-allocate.

Also if you have not already done so, consider setting up a separate traditional or Roth IRA, depending on your tax/income situation. An account separate from your employer would offer more investment options and fewer restrictions. In particular, you will be able to find bond funds with lower expense ratios. Your asset allocation is for all accounts combined.

politenessman

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Re: A question of Bonds
« Reply #10 on: October 29, 2019, 09:40:45 AM »
So I did re-balance my 401k and moved from zero to 40% bonds.
Also modified my investment pics from 100% stock to a mix of stocks and bonds.

I do have a Roth IRA and while to date I have not been able to fully find it, I am on track to do so next year. It is separate from my employer.

Thank you all for your thoughts and answers. I have more reading to do but I have a direction now.