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So, I keep hearing that bonds are not a very safe bet nowadays.
I'm a very conservative investor. Since the beginning of the year, I've had my 401K portfolio enrolled (through Fidelity) in a moderately conservative fund. It consists of approx 30% stocks and 70% bonds. Currently, I've broken even on my year-to-date.
However, I'm thinking the it may be time to move from this moderately conservative fund to a less conservative or growth model.
I have already enrolled my future allocations to go to a growth portfolio (80% stocks, 20% bonds).
Should I move my current 401K balance to a growth portfolio too? You think it is smart to move my portfolio to a 80% stock/20% bond portfolio OR a less aggressive 60% stock/40% bonds OR keep it the same?
I can only tell you what my spouse and I have done, ten years from retirement: We're currently at 75/25 (really 80/20 plus our emergency fund is all cash, so that results in 75/25). We have moved some of our remaining bond exposure into alternative fixed income, specifically a floating rate fund, but don't hold much hope that that's really going to make a big difference. The majority of the rest is now in Vanguard Wellington, because I'm sure I don't know what to do, so at least in Vanguard Wellington I can blame them for getting it wrong and not feel so bad about what happens, myself.
So, I keep hearing that bonds are not a very safe bet nowadays.
I'm a very conservative investor. Since the beginning of the year, I've had my 401K portfolio enrolled (through Fidelity) in a moderately conservative fund. It consists of approx 30% stocks and 70% bonds. Currently, I've broken even on my year-to-date.
However, I'm thinking the it may be time to move from this moderately conservative fund to a less conservative or growth model.
I have already enrolled my future allocations to go to a growth portfolio (80% stocks, 20% bonds).
Should I move my current 401K balance to a growth portfolio too? You think it is smart to move my portfolio to a 80% stock/20% bond portfolio OR a less aggressive 60% stock/40% bonds OR keep it the same?
Just wanted to hear some thoughts.... thanks!
I think your motivation for being more aggressive is wrong. If you are afraid of bonds losing money, you should be even more afraid of stocks losing money. Stocks are a lot more volatile than bonds.
Over the long run, bonds usually return less than stocks, but you already knew that, right?
If you are afraid of bonds losing money, you should be even more afraid of stocks losing money.
Your comments are based on an understanding of what bonds did when interest rates were declining, which is not likely to be the case over the next long-term period. Volatility isn't the issue over the long-term; principal risk is. And the last time things were anything like they are now was the early 1950s, so unless you're quite old you don't have any personal experience with that aspect of the coming bond market. The OP's concern is depicted in this graph:
actually we never had times like these before. at no point in our 146 year history have we had such low interest rates and high stock valuations together..
we really are in uncharted waters.
in the past if stocks fell 15% bonds had you whole again in about 2-3 years.
when rates were this low typically markets were down 30-50%.
no one knows what to expect going forward this time. the outlook for both in the near term is pretty ugly looking.
i am still holding the course we are following model wise but with retirement looming we are planning around worst case scenerios as well as looking at dumping some market and interest rate risk by adding some immediate annuities down the road..
Last edited by mathjak107; 08-24-2013 at 03:31 AM..
Our model is around 50% stocks, 45% bonds and 5% alternatives. That has worked well for us over the past few years. The problem for planning forward is that we simply don't know what is around the corner. You get dire predictions of doom for both bonds and stocks and moving into cash with current interest rates is an equally bad solution. So you just have to try to keep the portfolio balanced and in high quality securities.
we are about 35% equities but if things fall enough i would do 50/50 through retirement. in fact many times i just want to say the heck with it and let it all ride in wellesley. many many retirees use that as their only fund.
My financial adviser is suggesting getting a bit more aggressive than our current 74% equities/26% bonds-and-cash split, as we start aiming for retirement in 7-10 years.
well without an annuity or big cash hoard it can be a spin of the wheel as to whether you will get hurt trying to raise cash to live on if markets move against you when it is time to retire. an extended downturn at the beginning with high allocations can be a killer if you have to spend down from equities ..
we toned things down about 7 years prior and raised a few years cash already in place.
100% equities and an annuity to cover living expenses can be a do if you have the pucker factor. use the equities down the road to inflation adjust.
in fact if you are willing to increase equities by 1% a year through retirement instead of cutting back dr pfau found you don't need the annuity.
you can use bonds , cash etc instead but if you do that in order to get the same results it involves increasing allocations by 1% a year.
why ? because if you figure an annuity as paying to age 100 or so max then at age 80 with 20 years left your annity can be looked at as 20% fixed income and if everything else was in equities 80% equities.
it is the very high 80/20 allocation by age 80 with the annuities that increases your performance and success rate so much.
you would have to increase allocations by 1% a year using a bond and cash ladder to duplicate that.
a traditional 40/60 , 50/50 fix or 70/30 etc etc has that ratio maintained fixed through retirement with spending down coming from both stocks and bonds/cash...
allocations never increase like they do with the annuity and so historically success rate drops along with the balance at the end compared to the annuity and 100% equities ..
Last edited by mathjak107; 08-24-2013 at 06:48 AM..
Should I move my current 401K balance to a growth portfolio too? You think it is smart to move my portfolio to a 80% stock/20% bond portfolio OR a less aggressive 60% stock/40% bonds OR keep it the same?
When I am investing long, I do 100% stock index. Small caps are usually the most aggressive.
Bonds are downtrending now, so it doesn't make any sense to invest in bonds until they turn around.
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