Author Topic: My move to bonds in early post-FI: Market Timing, Maybe, but I知 sleeping better  (Read 1247 times)

Mother Fussbudget

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I know most mustachians will call "market timey-wimey" on me, but after working so hard to save in the accumulation phase, I recently found myself not sleeping well at night being 100% in stocks post-FIRE. Mainly because of all the 'noise' caused by the trade tariffs, and how badly that's impacting folks like farmers, and the general unpredictability of the "noise-du-jour".

That is why I just pulled the plug on moving out of VTSAX and into VBTLX - the total bond fund.
Now my mix is 80/20 in VBTLX/and stock-funds (in my case split between BRK-B and VGSLX).

I may not make as much on returns, but I知 protecting my assets from a downturn in the earliest years of FIRE.  I picked the VGSLX REIT fund based on my experience in the 2003-ish dot-com bust:  today's markets seem similar to those days IMHO, and I noticed that real estate kept it's value better than the overall market during that downturn. 

The plan is to return to a more 50/50 balance of stocks/bonds after the 2020 election cycle is behind us. So yes, I have an 'plan' / exit strategy, and while it may be based on emotion, it seems like a safer alternative right now after recent market f_uctuations. 

I don't mind the face punches because I'm sleeping better at night - just FYI.

All the best!  - MFB

bobble

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Sounds like you have decided on a more suitable asset allocation and written down a plan of action that you can stick to. You're getting out of equities with a gain rather than a loss too. Great job!

Have you already decided on exactly which date to switch to 50/50?

bobble

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also: did you already try your new AA in firecalc?

Archipelago

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There's a solid argument to be made for the non-monetary benefit of hedging your retirement funds in case of a downturn. That is a personal decision. If it helps you sleep at night, there's nothing wrong with that.

That doesn't change the fact that if you were to leave your money in the stock market for any 20 year period across time, you have a 100% chance of making money. Even if you were the world's worst market timer. For those who are able to commit to a 15-20 year holding period, this makes the most sense. Not everyone winds up in that sort of position.

bacchi

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^^ Yeah but the OP is withdrawing money and SORR does exist.

This is a bond tent a la Kitces.

It's similar to other plans that sell off stocks to buy bonds depending on CAPE or excess returns (like McClung's "Prime Harvesting" plan).


Financial.Velociraptor

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I think you have made a wise decision.  I can't sleep without 40% in fixed income in FIRE.  I don't regret any drag on returns.  I expect to die with more money than any person should have anyway.

MaaS

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Stress is bad for your health. Health is important. If it helps you mentally, who cares if past results say it's "not optimal?" I really doubt I'll be 100% in stocks when I retire either, for similar reasons.

thesis

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How dare you make decisions for yourself! The FIRE collective dictate that 100% VTSAX is the only logical option! ;)

Yeah, post-FIRE is different from accumulation phase. I'm not concerned now because I'm still accumulating, but it will be a very different story when I reach that point. Even then, I keep a decently large cash hedge. Whatever it takes to not panic is going to make you more money in the end anyway. I think that is often forgotten.

PathtoFIRE

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Your move sounds similar to Kitces's bond tent and ERN's glidepath. With that said, ERN's analysis looking at different glidepaths, using a WR of 3.5%, seems to suggest that you may be going too heavy into bonds (https://earlyretirementnow.com/2017/09/13/the-ultimate-guide-to-safe-withdrawal-rates-part-19-equity-glidepaths/), with the closest analogous situation of starting at 20% equities and gliding back up to 80% over 6-10 years, showing greater failure rates than more modest glidepaths and even just fixed equity levels of 60%, 80%, and 100%. His numbers really point to the lowest failure rates with a 60%->80-100% glidepaths, especially when he repeats the analysis using only historical retirement dates with a CAPE of >20, as it is now.

NorCal

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No face punches deserved at all!

Risk tolerance and asset allocation is an individual decision, and there is no global right or wrong answer.  Anyone who tells you otherwise either misunderstands risk, or is trying to sell you something.

My only personal critique would be to find an asset allocation you're comfortable with regardless of your personal feelings on the market.  If you're comfortable with 50/50, use that.  If you're comfortable with 80/20, use that.  Having a conservative asset allocation isn't typically a problem, but continually shifting your allocation leads to bad financial decision making (on average).

If your primary concern is sequence of returns risk, there are some strategies to help mitigate that without going too conservative on your asset allocation.  I strongly recommend the book "Asset Dedication" on the topic.  It has a good bond strategy to help mitigate the impact of down markets while keeping a relatively high stock allocation.

ChpBstrd

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What is your withdrawal rate if you don稚 mind me asking?

Buffaloski Boris

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No face punches here. SoRR is real.

20% in equities seems shockingly, horribly low. Good for you. I have some company! Yippee!

I agree with the recommendation to check out the stuff at ERN.


Buffaloski Boris

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Here痴 a quote from a book I知 reading about Warren Buffett:

的n 1969, Warren did what Graham had failed to do in 1929: he cashed in his chips and walked away from the game. Warren closed down his investment partnership, gave his investors their significant profits, sold off his investment portfolio, turned it into cash, and then did nothing for 3 long years. As he has said, he 都at on his hands while the rest of the investment community was making tons of easy money. As Buffett has often said, those were 3 of the longest years of his life, but he didn稚 budge - he stayed in cash.

vand

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Bonds have had a big jump in the last few months and probably due to retrace a decent chunk of that.

That said, I will never criticize any change that allows an investor to sleep easier at night (I'm just not convinced that bonds are the automatic safe-haven and counter balance to stocks that most people assume) . I personally don't consider a stock/bond portfolio to be properly diversified. An inflationary recession like we saw in the 70s would nail both sides of this portfolio.

Malkynn

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That sounds like a bond-tent, but done in a less dispassionate manner.

It might help you to read about SORR in more detail and make a clear plan with a clear timeline for how you want to manage your AA.

It's not that moves like this are frowned upon, it's that moves like this made emotionally and without a clear plan are frowned upon.

A bond tent may be right for you or a permanent AA with more bonds might be. If so, write yourself a new investment plan that spells out exactly what you want to do and stick to it.

firelyve

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Not sure if this fits here, but since the discussion touched on fixed/bond investments I thought I'd post this here.

I read that the US Govt EE Bonds payout poorly UNLESS they are held for a full 20 years, at which point they are guaranteed to double face value, which is about a 3.5% yield per yearr.  Now, 20 years is a long time, I know, but for someone that is going to FIRE in their late 40's (me) or earlier like some of you guys, would this be worth putting a portion of your fixed income there?  Buying some LT bond funds today would yield about that, but the price of the asset could fluctuate big, which should indicate a higher yield, but not necessarily. 

Thoughts on this?  Thanks!

Buffaloski Boris

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That sounds like a bond-tent, but done in a less dispassionate manner.

It might help you to read about SORR in more detail and make a clear plan with a clear timeline for how you want to manage your AA.

It's not that moves like this are frowned upon, it's that moves like this made emotionally and without a clear plan are frowned upon.

A bond tent may be right for you or a permanent AA with more bonds might be. If so, write yourself a new investment plan that spells out exactly what you want to do and stick to it.

Writing down an investment plan is a great idea and on my to-do list. Put it to paper when you池e dispassionate and read it when the market is being, well, the market. Over at bogleheads they use the term 的nvestment Policy Statement  and have a wiki on it.

seattlecyclone

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Not sure if this fits here, but since the discussion touched on fixed/bond investments I thought I'd post this here.

I read that the US Govt EE Bonds payout poorly UNLESS they are held for a full 20 years, at which point they are guaranteed to double face value, which is about a 3.5% yield per yearr.  Now, 20 years is a long time, I know, but for someone that is going to FIRE in their late 40's (me) or earlier like some of you guys, would this be worth putting a portion of your fixed income there?  Buying some LT bond funds today would yield about that, but the price of the asset could fluctuate big, which should indicate a higher yield, but not necessarily. 

Thoughts on this?  Thanks!

The 20-year thing is actually true. The Treasury guarantees to give you double your money back if you hold EE bonds for 20 years. The downside is that these bonds are currently paying a 0.1% fixed rate of interest for the first 19.9 years. EE bonds can be fine if you know you won't need to touch that money for 20 years, but if you're certain about this then why not just invest that money in stocks? The odds of not doubling your money in the stock market over the next 20 years are pretty low. My fixed income allocation exists for the purpose of getting me through the next recession, whenever that may be, without touching my equities. I don't want to tie an arbitrary 20-year clock on that.