Author Topic: What percentage of your portfolio is invested in bonds?  (Read 10947 times)

MrGville

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What percentage of your portfolio is invested in bonds?
« on: November 28, 2017, 08:13:55 AM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks

GuitarStv

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Re: What percentage of your portfolio is invested in bonds?
« Reply #1 on: November 28, 2017, 08:14:31 AM »
35 years old and I keep 40% of my portfolio in bonds.

http://canadiancouchpotato.com/wp-content/uploads/2015/01/CCP-Model-Portfolios-ETFs-2016.pdf

Average annualized returns over a 20 year period show minimal difference between a 60 - 40 split and a 90 - 10 split.
« Last Edit: November 28, 2017, 08:19:28 AM by GuitarStv »

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #2 on: November 28, 2017, 08:15:22 AM »
48, 0% = bonds

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #3 on: November 28, 2017, 08:16:21 AM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks

Too little for what?

boarder42

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Re: What percentage of your portfolio is invested in bonds?
« Reply #4 on: November 28, 2017, 08:18:33 AM »
i'll never hold more than 10% bonds - i currently hold 0% bonds in the accumulation phase.  and will hold 5-10% in the withdrawal phase.

MrGville

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Re: What percentage of your portfolio is invested in bonds?
« Reply #5 on: November 28, 2017, 08:23:19 AM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks

Too little for what?

Good question.  Should I have more bonds so I will be able to reallocate that money to equities during a downturn? 

doneby35

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Re: What percentage of your portfolio is invested in bonds?
« Reply #6 on: November 28, 2017, 08:24:46 AM »
32 here. 0% bonds. I will think about adding 10-25% bonds once I'm FIRE.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #7 on: November 28, 2017, 08:28:46 AM »
Good question.  Should I have more bonds so I will be able to reallocate that money to equities during a downturn?

Why? Having those bonds drag down your portfolio returns for all the years between downturns means you will start with less $$ at the top of the downturn and rebalancing with bonds isn't going to bring you back to even. So that ^^^ is not a reason I would support for holding bonds....especially as you are accumulating and not withdrawing $$ for the next 10yrs+.


GuitarStv

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Re: What percentage of your portfolio is invested in bonds?
« Reply #8 on: November 28, 2017, 08:30:08 AM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks

Too little for what?

Good question.  Should I have more bonds so I will be able to reallocate that money to equities during a downturn?

That entirely depends on you.  As long as you're OK with riding out the occasional swing where you lost more than half of your net worth studies show that you'll do slightly better in the long run by staying all equities.  It's difficult to know exactly what you'll do before that situation really happens to you though.  I started investing in 2007, and the next couple years were really scary.

PlainsWalker

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Re: What percentage of your portfolio is invested in bonds?
« Reply #9 on: November 28, 2017, 08:31:24 AM »
33 I have 25% written down in my IPS for bond allocation. I'm actually at 17.5% right now. Fortunately Vanguard has an automatic re-balancing feature and the discrepancy will be corrected sometime in early December.
I graduated from college and entered the workforce just as the great recession hit. I do not have the constitution for an all stock asset allocation. Having a quarter of my portfolio in bonds smooths Mr. Markets wild ride. It also leaves some dry powder around to re-balance with when stocks tank.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #10 on: November 28, 2017, 08:33:50 AM »
That's ^^^ the best reason to hold bonds in the accumulation phase...if it will stop you from panic selling in a crash. That said if you have $300K made up of $200K stocks and $100K bonds and the stocks crash 40% your portfolio will be worth say $220K vs. $180K for a 100% stock portfolio. So it depends if that's enough of a difference to prevent a bad reaction.
« Last Edit: November 28, 2017, 08:53:10 AM by Retire-Canada »

boarder42

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Re: What percentage of your portfolio is invested in bonds?
« Reply #11 on: November 28, 2017, 08:36:43 AM »
There was a graph on here that once you hit 90% stock AA to bonds your extra returns diminish considerably compared to the steap curve upward to 90% - in accumulation i'll take on that extra return in distribution i dont think its worth it. 

But as RC said your reasoning for carrying more bonds to buy low in a crash is trying to time the market and not a good reason to carry bonds in your portfolio.

MrGville

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Re: What percentage of your portfolio is invested in bonds?
« Reply #12 on: November 28, 2017, 08:44:42 AM »
Thanks for the good advice.  I'm not going to adjust my AA at this point.  Yall are correct in that my reasoning for considering more bonds was essentially driven by trying to time the market.

frugaliknowit

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Re: What percentage of your portfolio is invested in bonds?
« Reply #13 on: November 28, 2017, 09:45:51 AM »
I am looking at a more traditional retirement age.  I was 100% stocks up until a year ago (age 57), when I decided it's time to cut the risk.  I've settled on 120 - Age = %Stocks (except I believe if you are more than 15-20 years from retirement, just do 100% stocks...).  I will stop adding bonds at age 70, which will be the 50% mark (I don't forsee the need to get any more conservative than that...).

In your case, you are planning to Fire in 13 years.  There WILL be at least one bear market between now and then.  You need to consider what happens if the market tanks near your Fire date.  If you are going to continue with a high stock allocation, you might need to be flexible with your FIRE date.  You could also argue that in your case, age 40 is like 65 or 70...?

RWD

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Re: What percentage of your portfolio is invested in bonds?
« Reply #14 on: November 28, 2017, 10:26:58 AM »
We're targeting 15% bonds though we're less than that now. Our IPS is essentially a slightly more aggressive Rick Ferri Core Four. I am 33 with intention to FIRE by 40.

jamesbond007

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Re: What percentage of your portfolio is invested in bonds?
« Reply #15 on: November 28, 2017, 11:48:40 AM »
I'm 34 with a planned FIRE by 50 or hopefully earlier. I am 100% stock. I will get to bonds when I get within 5 years of FIRE.

ChpBstrd

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Re: What percentage of your portfolio is invested in bonds?
« Reply #16 on: November 28, 2017, 09:50:07 PM »
39 years old.
12% bonds.

However, my bond holdings are junk yielding over 7%, so not necessarily safer than stocks. These include Ferrellgas (propane delivery), Navient (student loans), and Noble (oil).

I bought the Noble at a discount a couple years ago when oil prices were cratering. I'm up 21% now, have been paid a coupon in the meantime, and it matures in early 2018.
The others have not done so well. Ferrellgas botched a leveraged acquisition and student loan defaults increased. However both are still paying the coupons I bought them for, and are unlikely to default IMO. Bargains like my Noble bonds come along, but it's hard to watch for them.

COEE

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Re: What percentage of your portfolio is invested in bonds?
« Reply #17 on: November 29, 2017, 07:17:59 AM »
Adjusting to the market and timing the market are two different things!  I personally hold a 60% US / 20% International / and 20% bond market allocation.  I always have and I always will.  I'm not timing the market I'm adjusting to the markets.  I could care less who's up or a down.  I rebalance whenever any one of them comes 3% out of bed with my desired AA.

It's important to own poorly correlated assets to stabilize the ride, and to have money to invest when things change.  Similarly, I'm buying more bonds right now because stocks are doing so well.

Sounds like some of us need to rewatch the Bogleheads video series https://www.bogleheads.org/wiki/Video:Bogleheads%C2%AE_investment_philosophy.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #18 on: November 29, 2017, 07:24:15 AM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks

I'm like 10%, and am mid 30s and 5-10 years from FIRE.  I should have a little more bonds.

There is a small group that pushes the idea of using100% stocks, even if you are retired.  I think CurryCracker and that other guy (Collins?) who wrote a lot of the original FIRE financial blogs, supports this idea.  Something about how stocks are so tied to bonds and the other aspects of the financial markets, that they are secure enough.  I don't really get it... am not yet convinced that going 100% stocks is not risky.  Almost all of these people who go 100% stocks have never been through a recession (or were early in the stache growing process where it is easier to stomach) or have supplementary blog income or various other ways to cope.  They essentially lower their risk in other ways.  I still think the bottom line is that if you depend on your nest egg for income in order to support a certain quality of life, then you will need some amount of bonds to draw from when stocks are down.

Most of this forum goes on the assumption that on the long term, the 7% rule (stock growth) will hold true.  But this is entirely theoretical.  And if there is anything that's difficult to predict, it's the stock market.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #19 on: November 29, 2017, 08:28:52 AM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks

Too little for what?

Good question.  Should I have more bonds so I will be able to reallocate that money to equities during a downturn?

That entirely depends on you.  As long as you're OK with riding out the occasional swing where you lost more than half of your net worth studies show that you'll do slightly better in the long run by staying all equities.  It's difficult to know exactly what you'll do before that situation really happens to you though.  I started investing in 2007, and the next couple years were really scary.

The other problem is that just because past studies on past performance give favorable predictions, does not guarantee those predictions will be accurate.  It's very hard to quantify the risk involved here; therefore there is some unknown present.

This is why when you go to a more investment-savy forums like bogleheads, people that are 100% stocks are more rare.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #20 on: November 29, 2017, 08:31:05 AM »
This is why when you go to a more investment-savy forums like bogleheads, people that are 100% stocks are more rare.

The BH investor is typically older and has less flexibility. I wouldn't suggest that the differences are due to BH folks being more savvy.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #21 on: November 29, 2017, 08:31:33 AM »
Adjusting to the market and timing the market are two different things!  I personally hold a 60% US / 20% International / and 20% bond market allocation.  I always have and I always will.  I'm not timing the market I'm adjusting to the markets.  I could care less who's up or a down.  I rebalance whenever any one of them comes 3% out of bed with my desired AA.

It's important to own poorly correlated assets to stabilize the ride, and to have money to invest when things change.  Similarly, I'm buying more bonds right now because stocks are doing so well.

Sounds like some of us need to rewatch the Bogleheads video series https://www.bogleheads.org/wiki/Video:Bogleheads%C2%AE_investment_philosophy.

you are correct!

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #22 on: November 29, 2017, 08:39:25 AM »
This is why when you go to a more investment-savy forums like bogleheads, people that are 100% stocks are more rare.

The BH investor is typically older and has less flexibility. I wouldn't suggest that the differences are due to BH folks being more savvy.

I definitely think they are more savy than the average MMM forum poster (myself included).  However, I agree that they are probably older, and probably less flexible too (mustachians more able to deal with financial hurdles).  But I still bet that if the market had no been kicking ass for the past 5+ years, we'd hear a much different tune on this forum. 

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #23 on: November 29, 2017, 08:51:07 AM »
I definitely think they are more savy than the average MMM forum poster (myself included).  However, I agree that they are probably older, and probably less flexible too (mustachians more able to deal with financial hurdles).  But I still bet that if the market had no been kicking ass for the past 5+ years, we'd hear a much different tune on this forum.

I invested through the tech bubble and 2008 - neither was much fun. I'm 100% stocks during accumulation.

To the BH vs. MMM comparison one simple example is Gov't retirement benefits make up a much bigger portion of a frugal MMMer's annual spend than a spendy BH's annual cost of living. There are many other differences that have a major impact on investment approach.

Car Jack

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Re: What percentage of your portfolio is invested in bonds?
« Reply #24 on: November 29, 2017, 08:53:22 AM »
50%

I'm an old BH investor planning retirement in 2-3 years.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #25 on: November 29, 2017, 09:52:17 AM »
I definitely think they are more savy than the average MMM forum poster (myself included).  However, I agree that they are probably older, and probably less flexible too (mustachians more able to deal with financial hurdles).  But I still bet that if the market had no been kicking ass for the past 5+ years, we'd hear a much different tune on this forum.

I invested through the tech bubble and 2008 - neither was much fun. I'm 100% stocks during accumulation.

To the BH vs. MMM comparison one simple example is Gov't retirement benefits make up a much bigger portion of a frugal MMMer's annual spend than a spendy BH's annual cost of living. There are many other differences that have a major impact on investment approach.

That is a good point: having lower annual expenses means that things likes a small pension, SS, or mitigation of taxes and have more significant impacts, which allows someone to handle the higher risks of 100% stock investment.

I still think that the MMM forum believes too much in the 7% rule, though.  The forum believes very strongly in the inability of a person to predict the micro-trends of the market, but that the major macro-trend is very predictable.  This is the main place degree.  I agree that the 7% rule is likely to be right in the long run, but quantification of this risk is lacking, and therefore it is an unknown which potentially disastrous consequences.  People then point out that "well if so-and-so disaster occurs, it wont matter where invest".  But in fact it does; this is the purpose of diversification; to lower the risk of certain disasters.  Which is why I think some amount of bonds is good, even if it is likely to lower your overall returns.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #26 on: November 29, 2017, 09:55:40 AM »
That is a good point: having lower annual expenses means that things likes a small pension, SS, or mitigation of taxes and have more significant impacts, which allows someone to handle the higher risks of 100% stock investment.

Let's also be clear the OP and many [most?] of the MMM posters are in the wealth accumulation stage not in the post-FIRE wealth preservation stage. Those two stages of investment management also can suggest different portfolios. I am 100% stocks now that I am accumulating, but I won't be in retirement when I need to withdraw money to live off of.

In the OP's case he's 27 with 13yrs to planned retirement.

Rubyvroom

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Re: What percentage of your portfolio is invested in bonds?
« Reply #27 on: November 29, 2017, 11:35:49 AM »
36 y/o hoping to FIRE in 2020/2021. I hold about 10% in bonds, and would not re-balance so long as I was in the 5%-10% range.

That said, I have closer to 20% in bonds in my taxable accounts, which is actually not the smartest move from a taxation standpoint, but I know I need that money for my 5-year runway to pull the trigger on retirement, so I believe my "stomach" would be weaker when it came to losses in that pot of money. My long-term retirement accounts are nearly 100% stocks, as I found it quite easy to not do anything foolish with my retirement accounts in 2008.

Aggie1999

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Re: What percentage of your portfolio is invested in bonds?
« Reply #28 on: November 29, 2017, 11:45:09 AM »
Holding bonds in accumulation phase because one is worried they might do something stupid in a down turn makes little sense to me unless the person is something like 50% into bonds, which nobody recommends on this forum. IMO 10% of one's portfolio in bonds is not going to make much of a psychological difference if there is a large down turn.

Once one retires and is only living off their portfolio returns then some stake in bonds makes sense for the first few years of retirement.

I am 100% in equities other than around a 4% of my portfolio from a work pension.

ChpBstrd

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Re: What percentage of your portfolio is invested in bonds?
« Reply #29 on: November 29, 2017, 01:24:22 PM »
I am concerned that this time might really be different to the extent both stocks and bonds are historically expensive and priced on the assumptions of low interest rates and low inflation. If those assumptions are violated (as standard econ theory says it should have been a long time ago), both could collapse in tandem.

Historically, bonds have been cheap when equities were expensive and vice versa. Now both are near records, in terms of yields/earnings yields.

To illustrate, how would you adjust your AA if you received a message from 4 years in the future that said 10 year treasuries were yielding 6% and inflation was 5%? The message would be that horrific things had happened to both sides of people's portfolios. But that outcome is not even historically unlikely.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #30 on: November 29, 2017, 06:49:19 PM »
That is a good point: having lower annual expenses means that things likes a small pension, SS, or mitigation of taxes and have more significant impacts, which allows someone to handle the higher risks of 100% stock investment.

Let's also be clear the OP and many [most?] of the MMM posters are in the wealth accumulation stage not in the post-FIRE wealth preservation stage. Those two stages of investment management also can suggest different portfolios. I am 100% stocks now that I am accumulating, but I won't be in retirement when I need to withdraw money to live off of.

In the OP's case he's 27 with 13yrs to planned retirement.

I agree, but think the shortned timeline more reason to get more bonds ‘earlier’.  Now, 13 years is still a ways out, but most of us are less than 10.  Recovery from a recession takes time.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #31 on: November 29, 2017, 06:55:17 PM »
I agree, but think the shortned timeline more reason to get more bonds ‘earlier’.  Now, 13 years is still a ways out, but most of us are less than 10.  Recovery from a recession takes time.

I'm going to buy bonds a few months out from FIRE. Until then 100% stocks. Yes a crash can happen right before I FIRE, but even with 30% bonds [higher than I'll have] I wouldn't stop working as a big crash was starting. I'd ride out the recovery until I FIREd so it makes no difference to me either way.

Laserjet3051

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Re: What percentage of your portfolio is invested in bonds?
« Reply #32 on: November 29, 2017, 07:13:09 PM »
I'm 49 with a traditional retirement age horizon. Am presently gliding from 20% bonds to 25% using new money to effect the change. % is calculated from TOTAL portfolio, not just my RE accounts.
« Last Edit: November 29, 2017, 07:15:04 PM by Laserjet3051 »

YoungInvestor

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Re: What percentage of your portfolio is invested in bonds?
« Reply #33 on: November 30, 2017, 05:37:27 AM »
i'll never hold more than 10% bonds - i currently hold 0% bonds in the accumulation phase.  and will hold 5-10% in the withdrawal phase.

So if bond yields were 8% and P/e ratios were 50, still not over 10% in bonds?

boarder42

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Re: What percentage of your portfolio is invested in bonds?
« Reply #34 on: November 30, 2017, 06:07:48 AM »
i'll never hold more than 10% bonds - i currently hold 0% bonds in the accumulation phase.  and will hold 5-10% in the withdrawal phase.

So if bond yields were 8% and P/e ratios were 50, still not over 10% in bonds?

What you're hypothesisizing has never occurred before so there is no historical way to back test the outcome of this. And I'd say it's unlikely to occur. It's also market timing but if it happens im sure we'll be having some real discussions on these forums about increased bond holdings.

FLBiker

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Re: What percentage of your portfolio is invested in bonds?
« Reply #35 on: November 30, 2017, 07:56:05 AM »
We're at 10% bonds, and have been for the last several years (before that we / I was at 100% stocks).  ~7 years away from FI.  Personally, I'd do 100% stocks, but DW is more conservative so the bond allocation is for her piece of mind.  I don't know if we'll change it in the withdrawal phase.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #36 on: November 30, 2017, 12:42:03 PM »
I agree, but think the shortned timeline more reason to get more bonds ‘earlier’.  Now, 13 years is still a ways out, but most of us are less than 10.  Recovery from a recession takes time.

I'm going to buy bonds a few months out from FIRE. Until then 100% stocks. Yes a crash can happen right before I FIRE, but even with 30% bonds [higher than I'll have] I wouldn't stop working as a big crash was starting. I'd ride out the recovery until I FIREd so it makes no difference to me either way.

That's fine, but if that does happen, you might be delaying your FIRE by 5 years or so if it's a big crash... and this is all assuming past crashes resemble future crashes, and I still believe this leads to increased uncertainty.

Bonds (and other diversification) are what allow you to ride out the crash more easily.  During the crash, you live on your bonds (maybe even buy some cheap stocks).  The more bonds you have, the more you can handle the crash.

boarder42

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Re: What percentage of your portfolio is invested in bonds?
« Reply #37 on: November 30, 2017, 12:56:04 PM »
I agree, but think the shortned timeline more reason to get more bonds ‘earlier’.  Now, 13 years is still a ways out, but most of us are less than 10.  Recovery from a recession takes time.

I'm going to buy bonds a few months out from FIRE. Until then 100% stocks. Yes a crash can happen right before I FIRE, but even with 30% bonds [higher than I'll have] I wouldn't stop working as a big crash was starting. I'd ride out the recovery until I FIREd so it makes no difference to me either way.

That's fine, but if that does happen, you might be delaying your FIRE by 5 years or so if it's a big crash... and this is all assuming past crashes resemble future crashes, and I still believe this leads to increased uncertainty.

Bonds (and other diversification) are what allow you to ride out the crash more easily.  During the crash, you live on your bonds (maybe even buy some cheap stocks).  The more bonds you have, the more you can handle the crash.

there are very few(possily none) reasonable levels of bonds that will work with a 4% SWR for the early retiree that would prevent almost anyone here from working a few extra years if 2008 were to happen and their FIRE date was 2009 ... most would end up working longer regardless of 30% bonds or 0% bonds.

aceyou

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Re: What percentage of your portfolio is invested in bonds?
« Reply #38 on: November 30, 2017, 08:59:24 PM »
Im 34.  Stache is 175k currently.  100% vtsax

In retirement I'll likely stay 100% stocks since my wife and I will each be likely collecting pensions, which will act like a bond in that it smoothes our the ride in a down market. 

If there were no pensions, I'd probably do something like 75/25 or 90/10 if the situation were similar to 2017 conditions. 

One thing I WILL NOT say is that I for sure will or won't do any particular thing.  I mean, in Your Money or Your Life, they advocated for CD's because they were paying a ridiculously high rate.  So I'll do what makes sense at the time, although I full anticipate that being nearly all stocks. 

aspiringnomad

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Re: What percentage of your portfolio is invested in bonds?
« Reply #39 on: November 30, 2017, 11:33:24 PM »
35 years old, currently just ~7% bonds but also have a small pension and real estate equity that amounts to ~30% of my net worth. Automatic 401k rebalancing in December will bring that up a bit, but not beyond 10% overall.

Enigma

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Re: What percentage of your portfolio is invested in bonds?
« Reply #40 on: November 30, 2017, 11:50:03 PM »
It was 16% bonds but I just changed that to 9% bonds

beee

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Re: What percentage of your portfolio is invested in bonds?
« Reply #41 on: December 02, 2017, 02:11:07 PM »
29, 0% bonds, but paid-off condo

CoffeeR

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Re: What percentage of your portfolio is invested in bonds?
« Reply #42 on: December 02, 2017, 02:38:21 PM »
I am 27 years old and only ~3.5% of my portfolio is in bonds.  Is this too little?  I'm hoping to retire by 40.  Thanks
Until recently I was 100% stocks in retirement accounts. Recently (within the last year or so), I upped it to 17% bonds. I intend to become considerably more conservative as I approach FIRE (1-3 years), but I will (again) become more aggressive after I have settled into retirement.

Even though I will get face-punched by the market timing forum police, my precise AA will depend on market conditions. To me market valuations matter and I will take them into account when setting my AA. Note that the "excessive valuation" the finance talking heads are constantly harping about these days are nowhere near "excessive" by my standards and simply noise to be ignored. The recent changes in AA are due to me realizing I want to FIRE sooner rather than later.

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Re: What percentage of your portfolio is invested in bonds?
« Reply #43 on: December 03, 2017, 06:14:21 AM »
53 almost 3 years fired, 35% Bonds.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #44 on: December 03, 2017, 11:42:31 AM »
I agree, but think the shortned timeline more reason to get more bonds ‘earlier’.  Now, 13 years is still a ways out, but most of us are less than 10.  Recovery from a recession takes time.

I'm going to buy bonds a few months out from FIRE. Until then 100% stocks. Yes a crash can happen right before I FIRE, but even with 30% bonds [higher than I'll have] I wouldn't stop working as a big crash was starting. I'd ride out the recovery until I FIREd so it makes no difference to me either way.

That's fine, but if that does happen, you might be delaying your FIRE by 5 years or so if it's a big crash... and this is all assuming past crashes resemble future crashes, and I still believe this leads to increased uncertainty.

Bonds (and other diversification) are what allow you to ride out the crash more easily.  During the crash, you live on your bonds (maybe even buy some cheap stocks).  The more bonds you have, the more you can handle the crash.

there are very few(possily none) reasonable levels of bonds that will work with a 4% SWR for the early retiree that would prevent almost anyone here from working a few extra years if 2008 were to happen and their FIRE date was 2009 ... most would end up working longer regardless of 30% bonds or 0% bonds.

This is totally false.  30% bonds is more than enough for the typical mustachian to survive 5 years on only bond withdrawals, and amounts less than 30% can be made up for by pairing down living expenses rather than working longer.

Now, i might work longer if that situation happens regardless, but that is for the next thing want to address.  We arent preparing for 2008.  We are preparing for the unknown.  The 4% SWR is based on past performance.  Thr future brings unknowns, and often poorly quantified unknowns.

boarder42

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Re: What percentage of your portfolio is invested in bonds?
« Reply #45 on: December 03, 2017, 12:53:06 PM »
Thank you for proving my point you would work longer. So why hold any bonds prior to FIRE. I did not say that holding more bonds wouldn't allow you to draw down bonds in lieu of an euqity position I said most here would work longer regardless of their bond position. 2008 was just an example.

And while the future is "unknown" it's not really. The order of events may be unknown but we have a pretty good idea or no one would ever quit working.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #46 on: December 03, 2017, 05:30:23 PM »
That's fine, but if that does happen, you might be delaying your FIRE by 5 years or so if it's a big crash... and this is all assuming past crashes resemble future crashes, and I still believe this leads to increased uncertainty.

No it won't. If there is a big crash I am not going to stop working whether I have 0% bonds or 30% bonds. I'm not giving up a paycheque in that situation when I can work through the crash and FIRE into the recovery.

Retire-Canada

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Re: What percentage of your portfolio is invested in bonds?
« Reply #47 on: December 03, 2017, 05:34:09 PM »
Thank you for proving my point you would work longer.

Yes. I'm more worried about about working longer due to buying/holding bonds early in a rising interest rate environment than I am that I'll have to delay my FIRE date because there is a big crash just before I was going to retire. As noted in the post above I'm not going to FIRE right at the start of a major market crash no matter how many bonds I have.

Case

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Re: What percentage of your portfolio is invested in bonds?
« Reply #48 on: December 04, 2017, 10:15:38 AM »
Thank you for proving my point you would work longer. So why hold any bonds prior to FIRE. I did not say that holding more bonds wouldn't allow you to draw down bonds in lieu of an euqity position I said most here would work longer regardless of their bond position. 2008 was just an example.

And while the future is "unknown" it's not really. The order of events may be unknown but we have a pretty good idea or no one would ever quit working.

It does not prove your point; I specifically responded to:

"there are very few(possily none) reasonable levels of bonds that will work with a 4% SWR for the early retiree that would prevent almost anyone here from working a few extra years if 2008 were to happen and their FIRE date was 2009 ... "

Your argument seems to be that, any amount of bonds (you specified 30% as a high example, so we'll use that) will be insufficient to handle a crash just prior to FIRE.  You also explain how your post-FIRE plan is to have something like 10% bonds.  So what exactly are you going to do if the market crashed again?  Go back to work again?  If you design your portfolio with larger amounts of diversification, you lower your risk and it is less likely you'll need to go back to work.  There is nothing wrong with going back to work, but my goal is to not have to.  It's the "I" in FIRE.

The idea that most people here would work longer if a crash happened right before FIRE, is something that probably needs to be polled, but I do not disagree. 

I guess maybe your point is that the last year/part of the accumulations phase is disproportionately impactful on your nest egg size, because of the principles of compounding interest, as well as the tendencies of salaries to increase over the course of a career (both due to inflation as well as career track).  I agree with this, but my main point is that without bonds, you may have to extend your accumulation significantly... very significantly.  This is not something I want to do... and I think if most people here thought about, they would rather have a little bond buffer zone to balance out the risk of several years of extra work.

My point on unknowns is literally just that, that we are trying to bridge the qualitative/quantitative gap with insufficient information.  I think the reality (with poorly defined certainty!) is that, we have an unquanitified feeling that the stock market will continue to grow at 7% ish over longer periods, but this is being balanced with the cost of living a life of working a job we don't find fulfilling.  For most people here, this very host cost is worth the risk of relying on the stock market.  My point, is that we can further lower the risk by holding bonds, and that diversifying even further lowers risk further.  In order to get that lower level of risk without modifying your SWR, you need to work longer in order to save more money.  An alternative, the approach you are taking, is to work much longer in the event that the perceived unlikely event does in fact occur.  Myself, I prefer to work a little longer, in order to lower my risk of having to work many extra years.

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Re: What percentage of your portfolio is invested in bonds?
« Reply #49 on: December 05, 2017, 01:44:57 PM »
Age: 32. I am holding 10% bonds but they are corporate bonds returning 7.5% over the last 10 years or so.