Author Topic: Adjusting Investment Mix  (Read 299 times)

ThriftyStashMan

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Adjusting Investment Mix
« on: January 10, 2018, 11:33:49 AM »
I plan to RE in 5 years. At the present time, I am 100% in equities. Time to grow up and readjust to include a percentage of bonds. With the prospect of rising interest rates, what is my best play in the bond market space?

Rob_bob

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Re: Adjusting Investment Mix
« Reply #1 on: January 10, 2018, 02:02:19 PM »
Hello, first time posting but have been lurking for some time, finally decided to sign up.

In a rising interest rate environment short to intermediate term bonds have the least interest rate risk.  Mutual/ETF funds have constant turn over with varying maturity dates so there can be interest rate risk there too.

If I were looking to invest in bonds I would go with the Guggenheim Bullet Shares.  Each ETF is made up of bonds that mature in the same year.  You can build a bond ladder from 1-10 years maturity using their online tool, you can also create a mix containing high yield bonds as well.

Mighty-Dollar

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Re: Adjusting Investment Mix
« Reply #2 on: January 10, 2018, 05:28:08 PM »
I plan to RE in 5 years. At the present time, I am 100% in equities. Time to grow up and readjust to include a percentage of bonds. With the prospect of rising interest rates, what is my best play in the bond market space?
Nobody can predict if interest rates will go up next week, next year or 5 years from now, or if they'll go go up SLOWLY or just go sideways or even go down over the next few years. You HAVE to own bonds, otherwise you're 100% stocks. When stocks fall money runs to the safety of bonds. Bonds and stocks move in opposite directions. Just own a total bond market index fund like BND. Not as volatile as longer term bonds. And bonds will never be as volatile as stocks on even their worst day.

ThriftyStashMan

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Re: Adjusting Investment Mix
« Reply #3 on: January 11, 2018, 07:39:55 AM »
I'm leaning towards 40% in bonds. My current thought is to split this into 30% VTI and 70% IEF. Too conservative?

MustacheAndaHalf

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Re: Adjusting Investment Mix
« Reply #4 on: January 11, 2018, 09:42:06 AM »
It looks like Bulletshares are only available for higher risk categories, like junk bonds ("high yield") and corporate bonds (lower quality, but still investment grade).
http://portfolios.morningstar.com/fund/summary?t=BSCM&region=usa&culture=en_US

If someone follows this advice and uses junk bonds, they will be very unhappy when a stock market correction makes a severe dent in both their stock and bond allocations.  Junk bonds tend to collapse alongside stocks, making them not that useful for diversification.  Government bonds are much better, surviving crisis like 2008 far better than junk bonds did.

I would encourage everyone to have some allocation to bonds.  Even if you want 100% stocks... when will you learn to rebalance?  When will you develop good behaviors surrounding your investments?  Most likely you won't, while having 10% bonds will provide the opportunity to rebalance.  It becomes more important the closer you get to retirement. 

Note if you have enough to retire, and you risk it anyways, you can get burned by risk.  Risk isn't just for growing your portfolio, it's also the stock market crashing just before you planned to retire.  And suddenly, you don't have enough to retire.

You should also read about "sequence of returns" risk before believing you can retire on 100% stocks.  There's a risk your withdrawal rate becomes much higher after a crash, and could impact your retirement.