what vehicles do you use for non-stock pieces of your AA

[mistymoney]

What do you buy? What is your target bond and cash percentages for the day you fire?

I have avoided bonds and have planned without them, but is now a good time to buy them?

How about preferred stock or the dividend aristocrats? How useful are these to ease volatility?

[secondcor521]

What do you buy?

I'm mostly a Couch Potato kind of investor, so I just buy VBTLX.  If I had a high enough marginal rate, I would buy VWIUX.

What is your target bond and cash percentages for the day you fire?

I don't remember the timing, but around the time I FIREd, I was at 100% stocks.  Sometime around or shortly after FIREing, I went to 90% stocks 10% bonds because I wanted to maximize historical safety over my 40 year planning horizon.  Later I realized that I had perhaps twice to four times as much money as I needed, so that morphed into my current plan, which is 90/10 for "my" money and 100/0 for "my kids'" money.  Right now I'm at 98/2.

I've been at minimal cash for pretty much forever.  Definitely less than 1% and probably rounding to 0%.

I have avoided bonds and have planned without them, but is now a good time to buy them?

I think you should have a well considered investment policy statement (IPS) that would answer that question for you.

How about preferred stock or the dividend aristocrats? How useful are these to ease volatility?

Preferred stocks and dividend paying stocks tend to be less volatile.  Bonds are probably even less volatile than both of them on average.  All three are going to be both lower volatility and lower returns on average.

...

A somewhat common pattern is for investors to flee volatility into safety when things are bad, selling at a loss and buying at a premium to do so.  When things turn around and volatile investments are doing well, they reverse the pattern and sell their safe investments at a loss and buy stocks when they are higher.  Stocks eventually waver, causing the cycle to repeat.  Note that these investors pay commissions, fees, and taxes on both ends of the cycle.

The previous paragraph is an excellent way to pay much more in taxes and be left with much less than otherwise.  An IPS with an AA that reflects your true risk tolerance works better I think.

[ChpBstrd]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

[mistymoney]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

thanks, are your short term treasuries via treasury direct or a fund? taxable or tax-advantages? I think if treasurydirect - has to be taxable?

[mistymoney]

What do you buy?

I'm mostly a Couch Potato kind of investor, so I just buy VBTLX.  If I had a high enough marginal rate, I would buy VWIUX.

What is your target bond and cash percentages for the day you fire?

I don't remember the timing, but around the time I FIREd, I was at 100% stocks.  Sometime around or shortly after FIREing, I went to 90% stocks 10% bonds because I wanted to maximize historical safety over my 40 year planning horizon.  Later I realized that I had perhaps twice to four times as much money as I needed, so that morphed into my current plan, which is 90/10 for "my" money and 100/0 for "my kids'" money.  Right now I'm at 98/2.

I've been at minimal cash for pretty much forever.  Definitely less than 1% and probably rounding to 0%.

I have avoided bonds and have planned without them, but is now a good time to buy them?

I think you should have a well considered investment policy statement (IPS) that would answer that question for you.

How about preferred stock or the dividend aristocrats? How useful are these to ease volatility?

Preferred stocks and dividend paying stocks tend to be less volatile.  Bonds are probably even less volatile than both of them on average.  All three are going to be both lower volatility and lower returns on average.

...

A somewhat common pattern is for investors to flee volatility into safety when things are bad, selling at a loss and buying at a premium to do so.  When things turn around and volatile investments are doing well, they reverse the pattern and sell their safe investments at a loss and buy stocks when they are higher.  Stocks eventually waver, causing the cycle to repeat.  Note that these investors pay commissions, fees, and taxes on both ends of the cycle.

The previous paragraph is an excellent way to pay much more in taxes and be left with much less than otherwise.  An IPS with an AA that reflects your true risk tolerance works better I think.

I do have an IPS. But I wrote it, with whatever short sightedness and blinds spots I may have had at the time! So I revisit it. edit it.

It is also not so detailed as to fully answer my posted question, so trying to learn/do more on two levels here :)

[ChpBstrd]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

thanks, are your short term treasuries via treasury direct or a fund? taxable or tax-advantages? I think if treasurydirect - has to be taxable?

I buy treasuries and CDs through my broker. I know it's not super fee-efficient but I'm anticipating a pivot back to equities soon and it's worth avoiding the hassle of transferring funds back and forth with treasurydirect. So far, I've put all these bonds and CDs in tax-advantaged accounts, which are the vast majority of my assets.

[secondcor521]

I do have an IPS. But I wrote it, with whatever short sightedness and blinds spots I may have had at the time! So I revisit it. edit it.

It is also not so detailed as to fully answer my posted question, so trying to learn/do more on two levels here :)

Gotcha.

I'm a passive investor, so I think it's totally fine to have an IPS and update it as I learn more about things and think about things in general or if the laws change.  What I don't do is base any IPS statements or make any "investment" decisions based on what happens to be going on in the news cycle or with the Fed or with interest rates or with what the market is doing or really anything current events related.

When you asked "is it a good time to", it sounded like maybe you were looking at those current events to make your purchase decision.  That would be active investing, which I don't think works and therefore do not do.

[Laserjet3051]

I've been 80/20 for many years with the 20% being comprised of VBTLX, BSV, money market and cash. That said, VBTLX is the lions share of the 20% and over the past 1-2 years I've been trying to drift towards 75/25. I have 8-10 more years in the workforce and open to further drifting to 70/30 after hitting 75/25. Now, is a good time to buy bonds/bond funds if they are an investment you want in your portfolio and make sure to consider duration and yield in selecting a product that matches your objectives.

[Villanelle]

What Vehicles do you use for non-stock pieces of your AA?

I thought the new forum answer to this question was "Teslas".

[MustacheAndaHalf]

At Vanguard, settled cash waits in Vanguard Federal Money Market.  It earns about 5% with a duration of 0.033 years (12 days).
https://investor.vanguard.com/investment-products/mutual-funds/profile/vmfxx

Schwab International's settlement account offers poor yields.  There to earn about 5% I rely on SPDR Bloomberg 1-3 Month T-Bill ETF ("BIL").  Per the name, duration is 0.13 years (1.5 months).
https://www.ssga.com/us/en/intermediary/etfs/funds/spdr-bloomberg-1-3-month-t-bill-etf-bil

[mistymoney]

I do have an IPS. But I wrote it, with whatever short sightedness and blinds spots I may have had at the time! So I revisit it. edit it.

It is also not so detailed as to fully answer my posted question, so trying to learn/do more on two levels here :)

Gotcha.

I'm a passive investor, so I think it's totally fine to have an IPS and update it as I learn more about things and think about things in general or if the laws change.  What I don't do is base any IPS statements or make any "investment" decisions based on what happens to be going on in the news cycle or with the Fed or with interest rates or with what the market is doing or really anything current events related.

When you asked "is it a good time to", it sounded like maybe you were looking at those current events to make your purchase decision.  That would be active investing, which I don't think works and therefore do not do.

I see that, and maybe I am? I did not include bonds in my IPS at all, so I guess I was maybe open to it?

[secondcor521]

I do have an IPS. But I wrote it, with whatever short sightedness and blinds spots I may have had at the time! So I revisit it. edit it.

It is also not so detailed as to fully answer my posted question, so trying to learn/do more on two levels here :)

Gotcha.

I'm a passive investor, so I think it's totally fine to have an IPS and update it as I learn more about things and think about things in general or if the laws change.  What I don't do is base any IPS statements or make any "investment" decisions based on what happens to be going on in the news cycle or with the Fed or with interest rates or with what the market is doing or really anything current events related.

When you asked "is it a good time to", it sounded like maybe you were looking at those current events to make your purchase decision.  That would be active investing, which I don't think works and therefore do not do.

I see that, and maybe I am? I did not include bonds in my IPS at all, so I guess I was maybe open to it?

Nothing wrong with being an active investor.  I don't understand the entire mindset, though, so if that's the way you want to go I can't help you.  Maybe some others who believe in active investing can give you advice.

[Heliios]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

I thought the whole point of an IPS was NOT to change it, usually because the reason for such changes (ie. the stock market is doing badly)  were likely to result in a sell low/buy high scenario. In recent history, there was maybe one year in in the 1980s where bonds solidly outperformed stock market total return, and of course, any bond with a positive return will outperform the market if you specifically select the time range of top to bottom in a correction or bear market. However, we can only know the true tops and bottoms retroactively, which is why such market timing fails. Yes, a 9% Ibond in a falling market seems attractive, but the Ibond real return is supposed to be zero by definition, and you miss out buying stocks at low prices that will likely turn into huge returns when the market recovers

[ChpBstrd]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

I thought the whole point of an IPS was NOT to change it, usually because the reason for such changes (ie. the stock market is doing badly)  were likely to result in a sell low/buy high scenario. In recent history, there was maybe one year in in the 1980s where bonds solidly outperformed stock market total return, and of course, any bond with a positive return will outperform the market if you specifically select the time range of top to bottom in a correction or bear market. However, we can only know the true tops and bottoms retroactively, which is why such market timing fails. Yes, a 9% Ibond in a falling market seems attractive, but the Ibond real return is supposed to be zero by definition, and you miss out buying stocks at low prices that will likely turn into huge returns when the market recovers

Facepunch gracefully accepted.

But are stocks actually cheap right now? The S&P500 has a PE ratio of 23.84, about 49% above the long-term mean. In context, that looks even more expensive. 500bp of rate hikes have occurred in just 14 months, a campaign on a scale that has never NOT led to a recession - not even close. The 3m/10y yield curve is more inverted than it's been since the early 1980s. Plus we have another housing bubble, as indicated by a low affordability index and double-digit appreciation in 2021 at the same time when office vacancies are at a 30 year high. $450B of CRE debt must be refinanced in 2023, and a lot of these loans won't be justifiable in a higher-rate environment, especially now that banks are cash-poor and at risk of failure. So, given all that 2008-like information, it's hard to pass up a strategy of getting paid 5% risk-free to wait for better prices.

[Heliios]

Facepunch gracefully accepted.

But are stocks actually cheap right now? The S&P500 has a PE ratio of 23.84, about 49% above the long-term mean. In context, that looks even more expensive. 500bp of rate hikes have occurred in just 14 months, a campaign on a scale that has never NOT led to a recession - not even close. The 3m/10y yield curve is more inverted than it's been since the early 1980s. Plus we have another housing bubble, as indicated by a low affordability index and double-digit appreciation in 2021 at the same time when office vacancies are at a 30 year high. $450B of CRE debt must be refinanced in 2023, and a lot of these loans won't be justifiable in a higher-rate environment, especially now that banks are cash-poor and at risk of failure. So, given all that 2008-like information, it's hard to pass up a strategy of getting paid 5% risk-free to wait for better prices.

No facepunch intended. I'll admit that I didn't actually know the current S + P 500 P/E ratio or anything about commercial real estate debt, and I applaud you for staying informed  I'm just rabidly sticking to the simplistic "all-in on index funds" approach because attempting any other strategy plagues me with self-doubt. I'm also hoping that a few years of high inflation will eventually lead to a few years of high nominal stock market returns as it did after the 1980s. Yes, in retrospect, it would have been better to sell in Dec 2021, get into bonds or a hysa, and then switch back in the market in Oct 2022 (fingers-crossed as to whether or not that was actually a bottom).

[Heliios]

I notice the S&P500 max P/E reading occurred in May 2009, which actually wouldn't have been a bad time to buy stocks. Presumably this is an artifact of the 12 month trailing feature.

[Radagast]

I notice the S&P500 max P/E reading occurred in May 2009, which actually wouldn't have been a bad time to buy stocks. Presumably this is an artifact of the 12 month trailing feature.

In this case it’s an artifact of a severe recession sending earnings so low that even low prices weren’t enough to make it low.

[Radagast]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

I thought the whole point of an IPS was NOT to change it, usually because the reason for such changes (ie. the stock market is doing badly)  were likely to result in a sell low/buy high scenario. In recent history, there was maybe one year in in the 1980s where bonds solidly outperformed stock market total return, and of course, any bond with a positive return will outperform the market if you specifically select the time range of top to bottom in a correction or bear market. However, we can only know the true tops and bottoms retroactively, which is why such market timing fails. Yes, a 9% Ibond in a falling market seems attractive, but the Ibond real return is supposed to be zero by definition, and you miss out buying stocks at low prices that will likely turn into huge returns when the market recovers

Facepunch gracefully accepted.

But are stocks actually cheap right now? The S&P500 has a PE ratio of 23.84, about 49% above the long-term mean. In context, that looks even more expensive. 500bp of rate hikes have occurred in just 14 months, a campaign on a scale that has never NOT led to a recession - not even close. The 3m/10y yield curve is more inverted than it's been since the early 1980s. Plus we have another housing bubble, as indicated by a low affordability index and double-digit appreciation in 2021 at the same time when office vacancies are at a 30 year high. $450B of CRE debt must be refinanced in 2023, and a lot of these loans won't be justifiable in a higher-rate environment, especially now that banks are cash-poor and at risk of failure. So, given all that 2008-like information, it's hard to pass up a strategy of getting paid 5% risk-free to wait for better prices.

Is there a housing bubble though? Many places cite 15 years of underconstruction of houses relative to population growth. I don’t see any bubble behavior, just a bunch of people that want a house and can’t get one. Although I have seen a dumb strategy where sellers buy lower payments for the first two years of a 30 year loan assuming the buyer will refinance then, which I could see going badly if it gets popular.

[Radagast]

To OP I have allocations to ZROZ (extremely long treasury), i saving bonds, VWALX (“high” yield tax exempt) and RING (gold mine stocks). In theory equal weight but all except vwalx are very under weight as I slowly buy in with regular contributions on a kind of FiRE glide path. Might include a cash allocation at the very end, will see.

[JAYSLOL]

Vehicles that are not stock purchases for me have historically been Toyotas, but lately I’ve had a couple Hyundais and they’ve been pretty good to me.  But in seriousness, I’m just following, I’m quite a way from FI, so my AA is 100% stock for the time being, and I’ll figure out how and with what I want to move away from that later down the road. 

[ChpBstrd]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

I thought the whole point of an IPS was NOT to change it, usually because the reason for such changes (ie. the stock market is doing badly)  were likely to result in a sell low/buy high scenario. In recent history, there was maybe one year in in the 1980s where bonds solidly outperformed stock market total return, and of course, any bond with a positive return will outperform the market if you specifically select the time range of top to bottom in a correction or bear market. However, we can only know the true tops and bottoms retroactively, which is why such market timing fails. Yes, a 9% Ibond in a falling market seems attractive, but the Ibond real return is supposed to be zero by definition, and you miss out buying stocks at low prices that will likely turn into huge returns when the market recovers

Facepunch gracefully accepted.

But are stocks actually cheap right now? The S&P500 has a PE ratio of 23.84, about 49% above the long-term mean. In context, that looks even more expensive. 500bp of rate hikes have occurred in just 14 months, a campaign on a scale that has never NOT led to a recession - not even close. The 3m/10y yield curve is more inverted than it's been since the early 1980s. Plus we have another housing bubble, as indicated by a low affordability index and double-digit appreciation in 2021 at the same time when office vacancies are at a 30 year high. $450B of CRE debt must be refinanced in 2023, and a lot of these loans won't be justifiable in a higher-rate environment, especially now that banks are cash-poor and at risk of failure. So, given all that 2008-like information, it's hard to pass up a strategy of getting paid 5% risk-free to wait for better prices.

Is there a housing bubble though? Many places cite 15 years of underconstruction of houses relative to population growth. I don’t see any bubble behavior, just a bunch of people that want a house and can’t get one. Although I have seen a dumb strategy where sellers buy lower payments for the first two years of a 30 year loan assuming the buyer will refinance then, which I could see going badly if it gets popular.

In a supply/demand sense, there is a shortage. However I think it's being driven by low interest rates, a falling average household size, and lots of empty bedrooms, which is co-occurring with a steadily increasing median house size. To summarize, bigger and bigger houses are being built to house fewer and fewer people. This has been going on for decades, and so now the houses available to buy are large and resource-intensive. One and two person households have no choice but to buy 3BR if not 4BR homes in many areas. They're doing it, wasting money and overextending themselves in the process.

The other housing "crisis" is that everyone wants to live in trendy places like coastal big cities, Colorado, parts of New England, the DC area... There is no housing shortage in most of the midwest or south, and yet people are getting into bidding wars in the trendy places (there's also no job shortage, an oft-cited imaginary reason) . That housing shortage is their own creation. They want to live in these places simply because other people want to do it, and because it's expensive. Once in place, they support NIMBY development restrictions to keep propping up prices while complaining about all the homeless people. 

The whole dynamic is certainly a big problem, but it's driven by our own collective behavior and migration patterns, not an actual shortage of houses.

[RedmondStash]

This is an interesting question.

I've held VBTLX for about seven years, because it was the Done Thing, and because I am still educating myself. I can't say I'm thrilled with its performance, though right now the dividends are nice.

I'm aiming for 75/25 stocks/not-stocks, and I'm trying to learn more about non-VBTLX options for the not-stocks part. I've got a bit of money in I-bonds now. And I find I'm more comfortable keeping a higher percentage of my portfolio in cash than I'd expected, about 5%, in money-market funds. I just sleep better at night, inflation or not.

I don't want to fuss with CD ladders or TIPS ladders; that seems like too much tracking and work. There are some non-VBTLX bond index funds I might look into.

I want to just set-and-forget. Maybe when I'm done with my research, I'll leave my VBTLX as is.

I think it's reasonable to continue refining your plan as you gain experience, both with how investments behave and with your own reactions to that behavior.

I will say, though, that I'm concerned about any question about whether it's the right "time" to do something. To my mind, the time to invest is when you have the money. The time to sell is when you need the money. The time to change your investments is when you've learned things that lead you to change your IPS -- and you intend to make the change and then leave them alone long-term. But that's me.

However well or poorly VBLTX performs, I'm sure that if I keep changing my bond investments instead of leaving them alone, I'll underperform it.

[Mr Mark]

The past twelve months have been so much different than the past ten years that I've bought things I'd never imagined myself buying. These include CD's yielding about 5%, i-bonds with a variable yield, and a six-figure allocation to short-duration treasuries yielding about 5%.

Prior to 2022, I used options to hedge the risk exposure on my almost-100% stock portfolio.

 I was watching a portfolio manager pointing out that he would take a 'standard' 60/40 portfolio and take the 40 in bonds, allocate half to a double leveraged equity index and use the other 20% to hedge the position using options. And that by doing that he claimed he could boost the upside while retaining a downside hedge; ie more return for the same volatility. Interesting concept. I would love to see it backtested!

[2sk22]

I have distributed the non stock portion of our portfolio in a variety of places:
In tax deferred, its all in bond index funds.
In taxable, we have:
- savings accounts
- municipal bonds
- treasury ladder
- MYGA