Please help me make a case for keeping bonds in my portfolio vs going 100% equity.
Secondary question , where do people put their international equity (taxable vs tax-advantaged)? thinking about foreign tax credit in particular
In the ideal world, things go according to plan and you may never need to withdraw money. So, whether you can live on 2% of your portfolio, is of no bearing. 100% equity portfolio is fine if you can ride through both the peak and the troughs.
Obviously, we cannot predict the future. Consider the following scenarios:
+ a new president comes in and taxes dividend income at the same rate as regular income....bond incomes become taxed favorably...can happen you know :-)
+ your 2% living cost becomes 10%....hope this never happens, but it could for a couple of years...
+ When the stock market tanks 50%, it is the right time to buy more stocks but lets say you are out of cash. You can redirect the bond fund income into purchasing stocks....
+ You want to be a contrarian investor...buy bonds when everybody buys stocks and vice versa....
+ Bonds are purchased by folks looking for stability....100% equity portfolios are usually seen in young people OR ultra rich. So, bond returns oscillate less in comparison to stocks and hence act like a small ballast in choppy seas...
+ .....
There are many unpredictable scenarios which cannot be foreseen. So, bonds OR REITs or any non-traditional stocks are a way to hedge against the unforeseen scenarios. It depends a lot on your personality on how much percentage of your portfolio is a "hedge" against various unforeseen scenarios.
NOTE: You can read up on Efficient Frontier....or just sign up for Personal Outlook and let them evaluate the risk vs reward ratio for your investments.
Hope that helps.