Author Topic: Bonds and stocks how to get more bonds in portfolio  (Read 1232 times)

nancy33

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Bonds and stocks how to get more bonds in portfolio
« on: October 13, 2021, 11:10:44 PM »
Hello I am 54 years old and have been maxing out retirement forever along with my husband we now have millions of dollars but it is almost all in stocks. How do we rebalance to get to the recommended 50/50 stocks and bonds and what bond funds are recommended at vanguard or fidelity? Thank you! do we somehow dollar cost average by buying a few thousand of bonds every month, plus redirect all future retirement contributions to bond funds?
Also is the percentage of bond funds different/ less since we also will both receive government pensions?
Is the rule of thumb two years of living expenses in cash? We might retire in 3 more years. We set up an appointment next week with a fee based CFP as well.

neo von retorch

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #1 on: October 14, 2021, 06:09:26 AM »
> How do we rebalance to get to the recommended 50/50 stocks and bonds and what bond funds are recommended at vanguard or fidelity?

First, have you decided on your own personal investment strategy?
This may help: https://investor.vanguard.com/calculator-tools/investor-questionnaire/
I don't believe 50/50 is a universally accepted/recommended strategy or allocation.
(Personally I'm more of a 90/10 person during accumulation, and might move to 80/20 or 70/30 as I approach retirement.)

> do we somehow dollar cost average by buying a few thousand of bonds every month, plus redirect all future retirement contributions to bond funds?

This may depend on your desired asset allocation, and if you want to reach that within 3 years. For example, if you decide you really do want to move from 100/0 to 50/50 over 36 months, each month you could sell 1.4% of your stock holdings, and buy the equivalent amount of bonds.

> Also is the percentage of bond funds different/ less since we also will both receive government pensions?

Ah, so again the questionnaire above may help you.

> Is the rule of thumb two years of living expenses in cash?

Overall you're close enough to retirement that you probably want to take the time to move beyond "rule of thumb" and determine for yourself what you'll need. Given that you've been comfortable with 100% stocks so far, your risk tolerance is probably very high (that is, you can stomach the temporary downs.) But it still helps to have some bonds that should be more stable, so that in the case of market turbulence, you can sell bonds instead of stocks, and avoid selling stocks that have lost a lot of value. You'll also want to factor in your pensions to determine what your remaining "year of living expenses" number is, as it could mean you could keep less in cash/bonds than someone else might need.

You might want to read about something called an "Reverse Equity Glide Path." That is, you may shift to more bonds for the short term, but once you're past the early stages of retirement, you can shift back towards a higher percentage of equities/stocks in your portfolio.

https://www.kitces.com/blog/should-equity-exposure-decrease-in-retirement-or-is-a-rising-equity-glidepath-actually-better/
https://www.thebalance.com/what-is-an-equity-glide-path-2388560

boarder42

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #2 on: October 14, 2021, 06:18:15 AM »
^^ what he said

with govt pensions i'd personally hold 0 bonds in my investments.

Thats a cool calculator - suggests too conservative an answer to me personally but its pretty sweet.
« Last Edit: October 14, 2021, 06:20:57 AM by boarder42 »

MustacheAndaHalf

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #3 on: October 14, 2021, 08:07:42 AM »
Hello I am 54 years old and have been maxing out retirement forever along with my husband we now have millions of dollars but it is almost all in stocks. How do we rebalance to get to the recommended 50/50 stocks and bonds and what bond funds are recommended at vanguard or fidelity?
The conventional portfolio is 60% stocks / 40% bonds, but 50/50 should also work.  Besides diversifying to bonds, there's also international stocks.  Do you have individual stocks, or use index funds like Vanguard Total Stock Market?

You should read up on "rebalancing".  Each year, you place trades until your stock & bond mix matches your planned allocation.  So maybe you should have 10% bonds already, and sell enough stocks to get that allocation.  And then each year, you could shift another 3-4% stocks over to bonds.  That way when you need the money in retirement, bonds are ensuring the losses are smaller (and gains).

ChpBstrd

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #4 on: October 14, 2021, 10:11:21 AM »
...we now have millions of dollars but it is almost all in stocks.... 

...We might retire in 3 more years.

What kind of withdraw rate are you planning, based on current spending?

If your portfolio is >30x your annual spending, your asset allocation probably doesn't matter. You'll be fine regardless of this choice. In that scenario I'd leave it in stocks and plan to produce a large inheritance or charitable endowment. I certainly wouldn't incur tax liabilities for the sake of changing my asset allocation to something more conservative, when risk is actually off the table. At most I might built a bigger emergency or bear market fund by plowing the next 2-3 years' savings into bonds, cash, and/or gold funds.

If, on the other hand, you have millions in assets - but spend hundreds of thousands per year - your financial planner will need to balance sequence-of-returns-risk (SORR) with an allocation aggressive enough to keep up with your higher rate of spending in the long run. Plowing your next 3 years of earnings into low-volatility assets might not be enough to reach your targeted allocation in this scenario, and your financial planner will need to come up with a tax-optimized solution to sell and buy assets and get there. If your assets are in the range of 25x spending or less, you'll make this sort of plan.

In either case, your advisor will need to know the information I don't have, which is your annual spending rate. The easiest way to determine this number is via Mint.com or PersonalCapital.com.

Morning Glory

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #5 on: October 14, 2021, 10:46:42 AM »
I keep wondering if I need bonds too. I'm retiring in a couple months and my allocation is pretty much 100% stock except for 60k cash that I'm holding onto because I want to buy another house in a year. I could probably treat that as an emergency fund for now so that I can pull from there in case the market drops before I'm ready to buy a house, but after that I'm wondering if I need bonds or a large cash fund like that??? I plan on maintaining my professional license so that I will have an easy time getting part-time work if the need arises, so I don't feel the need to do fancy bond tents or glide paths or anything.

ChpBstrd

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #6 on: October 14, 2021, 11:10:08 AM »
I keep wondering if I need bonds too. I'm retiring in a couple months and my allocation is pretty much 100% stock except for 60k cash that I'm holding onto because I want to buy another house in a year. I could probably treat that as an emergency fund for now so that I can pull from there in case the market drops before I'm ready to buy a house, but after that I'm wondering if I need bonds or a large cash fund like that??? I plan on maintaining my professional license so that I will have an easy time getting part-time work if the need arises, so I don't feel the need to do fancy bond tents or glide paths or anything.

Bond convexity terrifies me at these near-record-low interest rates - when the Fed is talking about rate hikes as soon as next year.
https://www.investopedia.com/articles/bonds/08/duration-convexity.asp

FLBiker

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #7 on: October 14, 2021, 01:06:48 PM »
You've gotten good advice here.  Personally, I'm planning to be more like 80/20 in retirement, with that 20% more in HISA and GICs (aka CDs) rather than bonds, but it's the same idea.  And I agree, if I had a significant pension, I'd have 0 bonds.

mjr

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #8 on: October 14, 2021, 01:44:59 PM »
Record low interest rates means that (a) yields are really poor and (b) the bonds' asset values have nowhere to go except down.

I have zero bonds.  My defensive assets are in cash, as much as I hate cash.  There's ticking time bombs all over the world economy and cash lets me sleep at night.

Financial.Velociraptor

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #9 on: October 14, 2021, 01:57:01 PM »
Bonds are at historically low  yields.  I still hold some in RE (mostly munis within closed end funds).  There is a strong argument to be made right now to use bond alternatives such as preferreds, convertibles, buy/write funds, REIT/BDC/MLP, and especially just plain old cash (which can be 90 day Treasuries). 

More on CASH.  Cash can be thought of a long call option on the entire market that has no expiry.  The true "cost" is inflation plus the opportunity cost of foregoing Treasuries.  With Treasuries and other bonds paying so little, the opportunity cost is lower.  This makes a strong argument for holding more cash and near cash.  I'm trying to raise cash myself but it is hard in RE when you are trying to not sell any core positions.

ice_beard

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #10 on: October 14, 2021, 09:12:43 PM »
If I was < 12 months from retirement and dealing with this situation I would not be considering bonds, at all.  Any bonds you buy now will (probably) lose value when rates inevitably (but when?) are raised. 

You could consider income based investments, however, these too will likely suffer if/when interest rates rise.  Some examples could be a monthly payer like QYLD or a high yielding BDC like ARCC.  Both these options come with risk but are almost "bond-like" in your portfolio given that they provide income and add some ballast to your portfolio.  People are usually hesitant to invest in equities like these during working years because the payouts are taxed heavily and they risk missing out on growth, much like bonds.  So if you're about to stop earning money via working hours, you might consider earning money from income stocks.   

vand

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #11 on: October 16, 2021, 01:30:33 AM »
When nearly everyone has a universal view on the prospects of an asset class such as bonds on MMM right now it is the duty of the contrarian to stand up and make the opposite argument. That is quite often me, it seem.

I agree long term prospects for bonds do not look fantastic, but they are priced how they are priced. Stocks are also priced with the knowledge of bond pricing, so the idea that you want to avoid bonds because theyíre overpriced and hold stocks instead is a misnomer - stock returns too may well not be fantastic going forward.

And it is not a stretch of the imagination to see a scenario unfold when the next crisis rolls around in the not very far future where stocks get cut in half and bonds rally 20% even from their current levels. In that circumstance bonds are you shock absorbers and your only question will be why you didnít hold more.

ChpBstrd

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #12 on: October 17, 2021, 09:03:14 AM »
And it is not a stretch of the imagination to see a scenario unfold when the next crisis rolls around in the not very far future where stocks get cut in half and bonds rally 20% even from their current levels. In that circumstance bonds are you shock absorbers and your only question will be why you didnít hold more.

If you bought a 10y treasury bond last Friday yielding 1.59%, and wanted to know by how much the market interest rate would need to fall to by this time next year in order for your bond to appreciate 20%, the answer is -0.57%. You'd be up 10% if rates fell to +0.38%.
https://dqydj.com/bond-pricing-calculator/

Historically, 10y yields fell to 0.52% on 8/24/2020, which was when "the top was in" for treasuries.
https://www.treasury.gov/resource-center/data-chart-center/interest-rates/pages/TextView.aspx?data=yieldYear&year=2020

So a roughly 10% gain is certainly plausible in the event of another crisis as big or bigger than COVID-19. The flip side, of course, is that people who were buying these 10 year "safe" treasuries at the top are now down about 9% and if rates hit 2% they'll be down about 12%, not including interest.

Fun factoid: In Sept. 2019, the interest rate for 1-month treasury notes was higher than the rate people are now getting for 30 year treasury bonds!

nancy33

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Re: Bonds and stocks how to get more bonds in portfolio
« Reply #13 on: October 18, 2021, 05:24:41 PM »
Thank you all. A lot to consider. A lot to learn
Unrelated but I looked through everything and we had some funds with high expense ratios! From years and years ago before I knew better. So switched those to low expense ratio funds for now at least.