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Risk means many thinks ..a short term bond fund right now even if treasuries has negative real returns . You are losing money.
On the other hand with an economy as strong as we are showing , and great earnings a fund like fidelity floating rate high income with positive returns is a safer bet .
But if the economy changes that is not the place to be .
If you want fighter cover from black swans , well long Term treasuries are the place to be . Corporate bond funds are meh , their duration is longer than floating rate high income so they are getting hurt more from rising rates .
Fidelity strategic income was a good find to hold at one time , today not so much .
So as times change so should your choices in bond funds
I admit to having limited knowledge about exactly how bonds work so I'm a bit reluctant to take an active management role in switching in and out of funds. I'm not trying for more returns with less risk than should be expected, i just want to do the smart thing here. And to me the smart thing is to lessen the risk but I'm not ready to get too conservative either.
I always knew PIMCO was more volatile than many bond funds but I did not know it kind of mirrors the stock market to some extent. So maybe reduce our exposure to that fund? Thoughts on Van Guard Corporate Bond Fund?
There are times diy investing is not easy . Anyone buying voo and AGG and thinking that is a LIFETIME financial plan is going to learn it is not.
GOOD RETIREMENT PLANNING CAN REQUIRE A LOT MORE THOUGHT AND CHANGES JUST BECAUSE WE CAN BUMP THOSE HOUSE LIMITS.
We are not dealing with mostly average returns that work their way out of trouble over time anymore . We dealing with sequence risk and losing years and down years . These can really hurt a retirement regardless of average returns.
When spending down you can do severe damage early on that is not repairable later by even the greatest bull markets like when you are accumulating assets and it does not matter as much .
Spend down your bond and cash portions quicker than anticipate because inflation kicks up or markets take a dump can not end well
Last edited by mathjak107; 08-12-2018 at 02:57 PM..
I always knew PIMCO was more volatile than many bond funds but I did not know it kind of mirrors the stock market to some extent. So maybe reduce our exposure to that fund? Thoughts on Van Guard Corporate Bond Fund?
Yes, the fund does mirror the stock market to some degree. Typically, in major market downturns this fund will also go down, but not nearly as much. I think the key is to reduce exposure. You don't have to eliminate it completely.
As far as corporate bond fund goes, that's an ok choice, but not different enough than what you have now. I think a more flexible "core" fund that stays with investment grade bonds and mixes in corporate bonds with mortgages, and treasury bonds would be better. Funds l like in the category: Dodge & Cox Income, Fidelity Total Bond, Baird Core Plus Bond. For some reason, Vanguard didn't have an actively managed core bond fund offering until recently. They now have Vanguard Core Bond. It is only about years old, so not much of a track record and so far its performance has been less than stellar. However, it's such a short time frame, it's hard to say whether or not it's worthwhile. Like all Vanguard funds, it's cheap.
I also am still wondering if you have a stable value fund in the 401k. I think moving 20%-50% out of the PIMCO fund into a stable value would work well.
There are times diy investing is not easy . Anyone buying voo and AGG and thinking that is a LIFETIME financial plan is going to learn it is not.
GOOD RETIREMENT PLANNING CAN REQUIRE A LOT MORE THOUGHT AND CHANGES JUST BECAUSE WE CAN BUMP THOSE HOUSE LIMITS.
We are not dealing with mostly average returns that work their way out of trouble over time anymore . We dealing with sequence risk and losing years and down years . These can really hurt a retirement regardless of average returns.
When spending down you can do severe damage early on that is not repairable later by even the greatest bull markets like when you are accumulating assets and it does not matter as much .
Spend down your bond and cash portions quicker than anticipate because inflation kicks up or markets take a dump can not end well
Yes, the fund does mirror the stock market to some degree. Typically, in major market downturns this fund will also go down, but not nearly as much. I think the key is to reduce exposure. You don't have to eliminate it completely.
As far as corporate bond fund goes, that's an ok choice, but not different enough than what you have now. I think a more flexible "core" fund that stays with investment grade bonds and mixes in corporate bonds with mortgages, and treasury bonds would be better. Funds l like in the category: Dodge & Cox Income, Fidelity Total Bond, Baird Core Plus Bond. For some reason, Vanguard didn't have an actively managed core bond fund offering until recently. They now have Vanguard Core Bond. It is only about years old, so not much of a track record and so far its performance has been less than stellar. However, it's such a short time frame, it's hard to say whether or not it's worthwhile. Like all Vanguard funds, it's cheap.
I also am still wondering if you have a stable value fund in the 401k. I think moving 20%-50% out of the PIMCO fund into a stable value would work well.
I see PIMCO has a Beta of .34. Schwab lists it as "below average" regarding risk, they have Dodge and Cox Income which has a Beta of .68 as "average". I have Dodge and Cox as the core bond holding in my 401 so I'm familiar with it. Just trying to understand why PIMCO is considered more risky.
Thanks lizap
But what those planning a retirement have to remember is safe is a variable term . With cash instruments having negative real returns right now with low inflation, fixed income products can be hurt and are not really safe . Those negative real returns will grow worse as inflation rises.
The safest plan is one where the assets held complement each other and support each other .
While it’s a great move to have long term treasuries fly fighter cover for equities .you are exposed to devastating losses if inflation soars like what happened to retirees in 1965 and 1966 where it blindsided them from 2-1/2% to double digits in just a few short years .
So holding the long term treasuries which are 110% as volatile as the s&p needs gold to offset it . So those two can make excellent bedfellows .
Sure there are times everything moves up or down together like tightening when we have no clear cut vision of which one of the big 4 economic outcomes it will culminate in but eventualy one of the four evolve and it is then certain assets can soar and others be devastated
So portfolio construction in retirement can be a lot more difficult than when accumulating assets . Most conventional portfolios are only weighted for falling rates and low inflation since that is all we had for more than 40 years except for maybe a speed bump here and there .
Basically they try to rule out 3 of the 4 major economic outcomes like recession ,depression and high inflation so retirees are exposed to substantial drops as well as the danger of bumping those house limits I speak in terms of . Remember even the last 17 years were not enough time to have even a 60/40 portfolio beat 30/70 because of the sequence risk
Last edited by mathjak107; 08-13-2018 at 06:14 AM..
I see PIMCO has a Beta of .34. Schwab lists it as "below average" regarding risk, they have Dodge and Cox Income which has a Beta of .68 as "average". I have Dodge and Cox as the core bond holding in my 401 so I'm familiar with it. Just trying to understand why PIMCO is considered more risky.
Beta is based on what was potentially under different economic outcomes
treasuries are the only ones that can be counted on to move opposite the big down turns .
corporate and bonds with credit risk are more like stocks . what is bad for stock is usually bad for these types of bonds
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