Bogleheads bonds reddit. Buyer B decides to buy 1,000 shares.

Bogleheads bonds reddit The advantage of intermediate over short- and long-term bonds is the balance between yield and volatility. in exchange for the illiquidity across the term (it's not really illiquid at all in this world of T+1, but there certainly is price risk if you don't hold to term) you guarantee the rate for the term. Why is holding cash considered foolish when MMFs exist with zero risk? Because bonds blow cash out of the water over long periods of time, it's not even close. TIPS and I bonds help guard against inflation. So if you were 90% stock 10% bonds and had a roth and a taxable of equivalent value you might do 90% stocks 10% bonds in each account, which would be at a slight disadvantage to 100% stocks in the roth and 80% stocks 20% bonds in the taxable. If you felt very confident that bond yields would fall soon, EDV would be an excellent product to use. His work has since inspired others to get the most out of their long-term investments. Yes, the total bond fund goes down some years (1995, 1999, 2013, 2018) - it’s not a big deal. Those things are linked - fund NAV went up because the higher-yield, older bonds it holds became more valuable. but if you have reinvestment risk of maturing bonds that's actually really unsafe too. (Around 30k). I personally use two bond ETFs in my portfolio, namely IE00BSKRJZ44 (US 20+yr) and LU1686832194 (Euro 25+yr). " Correct. Don't even know when I'll retire. However, future bond distributions would be higher. The 0 bound is just a number. Aug 26, 2024 · Not having bonds will expose you to sequence of return risk which causes the most damage when it occurs early on in retirement. Some in the financial industry recommend a "bond tent" where 10 years before retirement one gradually rebalance from 80% equities and 20% bonds to 40% stocks and 60% bonds over 10 years. Bond funds hold a set of bonds instead of just one, just like a stock fund holds a set of stocks instead of just one. There’s a good discussion with some linked sources in this blog post on the 3-Fund Portoflio which offers this conclusion: . Not everyone invests for retirement. My suggested ratio is 70% VTI, 30% VXUS, and 0 bonds. VGIT has an average duration of around 5 years, while EDV is around 25. This is a recent adjustment from a straight 90% stocks / 10% bonds composed of: Stocks: 60% US stocks / 40% international, and Bonds: 70% US bonds / 30% international. Jack founded Vanguard and pioneered indexed mutual funds. There is tons of data showing index funds outperforming the managed funds, especially factoring in survivorship bias. Bonds aren’t supposed to “rally. Second, it doesn't say what "mix" of stocks and bonds was used to plot the efficient frontier graph in the article. Bonds % = age-20. This is a bad scenario for a long term bond investor. That's why the 60/40 stock bond allocation was the most "safe" during retirement historically. One could add in some of those bonds if they wanted. Longer duration bonds are more sensitive to rate changes because the delta between the current rate and their issue rate is in effect for a longer time than a short duration bond. Sure, the fixed rate varies a bit, but the inflation rate varies with, well, inflation, and doesn't vary in inflation-adjusted terms. I bonds don't get repriced in real dollar terms, which is what matters -- they have a known fixed real return for the entire life of the bond (or shorter, if you prefer). you can't live long enough to really let the swings be just background noise. Current yields from HYSA exceed dividends from BND. They are both a fantastic deal for holding long term, although each for their own reason. My financial advisor at RBC said he would never buy bonds and would always be 100% equity. If this is intended for retirement, all of the above likely have significant duration risk for you. How to people deal with this problem? I am fortunate to live in a very financially stable U. Most bond desks won't even talk to you unless you are going to buy 1M worth in a single purchase. The primary purpose of the 10% allocation to bonds would be to rebalance in the event of a market crash or prolonged bear market (as opposed to having the bond allocation for purposes of generating income, or reducing portfolio volatility). Almost certainly not. Total Bond market, do what feels right for you. It's all taxable income regardless. as you get older or if you plan a big expense in a few years). 5% for 10 years, no matter what money markets do. I only have 3% bond allocation and not planning to increase it ever. Savings bonds: I bonds or EE bonds provide state tax exemption & federal tax deferral (or exemption if used for qualified education expenses, including funding a 529 plan) No need to max these, but consider gradually transitioning your emergency fund to I bonds (mindful of the 1 year lockup), and/or using these savings bonds for a portion of Bogleheads are passive investors who follow Jack Bogle's simple but powerful message to diversify with low-cost index funds and let compounding grow wealth. In my opinion, short-term bonds should be only used to derisk, when your personal situation requires it (e. That's an inherent principle of marketable bonds. Basically, yields on bonds across the board, including CA muni bonds, have been going down more and more. 15% of my investments are in I-bonds. His work has since inspired others to get the most out of their long-term stock and bond investments by indexing. Both are tax-deferred with some tax-exempt redemption It’s a simple concept and easy to follow. It continuously reinvests money. BND, by comparison, has yielded 2-3% and only dropped about 12% with the recent "crash. If you allocated more to bonds there was a higher likelihood of outliving your money. With a bond fund, you will receive monthly, taxable income if held in a standard brokerage account. Obviously, you would prefer for it to increase in value, but that is less of a goal for a fixed income fund. Where you would have 10% in bonds now. However, for the bond component of my portfolio, the usual bond funds and ETFs don’t seem suitable, since the distributions are subject to income tax. I will describe what exactly bonds do in your portfolio and what they do not, and then I will share my plan. It may not seem that way because we had a recent bond apolcapyse. These can correspond to low, medium and high risk tolerance. I have this at T. So bonds, to my understanding, are only there to give us a hedge against stocks down turns, meaning that if you have a 60/40 portfolio, and stocks are falling, it is likely that bonds will hold up a little higher than stocks, and that’s where you rebalance Both I bond and EE bond offer something you can not get on the traded market. Primary Vendors: Vanguard, 401k and company stock at fidelity Amount to put in Bonds: About $50k that is in the bank. The default risk is lower than corporate bonds, but higher than treasury bills. I had BND for a while. " Asset allocation is a little different, but there’s one thing that stays the same: Please, don’t let anybody forget this. Bonds % = 2 x (age-40) where you would hold no assets in bonds until age 40 and by age 60 have 40% bonds. , 2022). Value goes up and down as rates change compared to the coupon rate of the bond, but over time this is a zero sum part of the equation - but the interest payments are not. I'm 24 and have 12% of my portfolio in bonds, and another 12% in a CD ladder. Bogleheads are passive investors who follow Jack Bogle's simple but powerful message to diversify with low-cost index funds and let compounding grow wealth. I'm not particularly knowledgable about bond funds (or investing in general), but let's consider this. Some people go to ridiculous lengths to try and carry the market as a whole, but once you get under 5% weight, there is basically a 0% chance it will have any impact on one's That makes the interest rate risk protection of individual bonds versus a fund something of a myth. The logic is identical. This means that when stocks decrease in value, bonds either can increase in value (e. These resources will probably be helpful: Ideal Bond allocation by age (thread) . A money market fund would help save some in taxes co. First, it's 26 years old and thus doesn't take into account the last 26 years of market patterns. TIPS and Treasuries, but also Series I and EE bonds). 5 years. So while your bonds will never lose value there is no risk and so no reward The second would be as part of a taxable bond allocation, if you have a 20+ year time horizon and you expect other options to yield less than 3. Bond funds can't deviate from their underlying asset values - mutual funds always trade at NAV, and ETFs have the AP arbitrage process to keep their value at NAV. 25%. ” The only way your bond fund would increase to its 2020 value would be if interest rates fell back to where they were in 2020, which would mean you would be getting 1%-2% per year moving forward on your bonds. 2 % and . His last words to me when I left were :"Bonds are not needed if you understand the stock market. I'm thinking to redeem the first 10k out as interest dropped to 3. If you felt only somewhat confident, VGIT is safer. This is really more of my bond allocation than EF. A bond fund does not ever mature so there is never a date of safety. EDV is going to move like a leveraged bond product, but without any kind of decay the way true leveraged ETFs do. 87. Rowe Price. Definitely a confusing topic. In this situation you likely want to retire with a large allocation of bonds (possibly as high as 50/50) to help guard against big swings in the market and extended recessions/depressions that c 81 votes, 48 comments. I don't need that much in straight cash. 17 votes, 15 comments. Short-term bonds until recently have had terrible yields (0-1%), while long-term bonds have dropped 30% in the last 1. I don’t need r/Bogleheads to know VTSAX is a reasonable investment (for example). There’s no good reason to consciously avoid international bonds, but there’s also no good reason to embrace them either; it’s unlikely to help your portfolio, and it’s unlikely to hurt it. The lack of taxes on municipal bonds is compensated for by lower yields. It’s gained 12 percent at best over a 20 year time span trough to peak. g. In a worst case scenario, say you retire with *just* enough money in your nest egg to barely meet your theoretical annual expenses for 30 years. If interest rates go up, the value of a bond fund goes down, but the yield goes up because the bond fund will be constantly cycling the capital return from old expiring bonds into buying new ones at the now higher rates. more important is opportunity cost. I like to think about bonds in a different way. But as others have said, bonds and bond funds are intended to provide ballast in a portfolio and help smooth some of the volatility versus really try to increase in price over time like equities. Each share price goes up to $1. In the 117 years since 1900, bonds have outpaced stocks in 42 years; in the 112 five-year periods, bonds have outpaced stocks 29 times; and even in the 103 fifteen-year periods, bonds have outpaced stocks 13 times. You need to educate yourself about what bonds are and why people invest in them and then decide on a plan based on your risk tolerance. You buy bond funds for liquidity and diversity. Intermediate-Term Treasuries are negatively correlated with the stock market. The total bond market is because I have a TDF in my employer account. Bonds will outperform cash in the long run because they generate an annual yield. We own all the stocks and a wide mix of bond durations including short, medium, and long term bonds. We would like to show you a description here but the site won’t allow us. Single name bonds don't have a guarantee to return principal either. Treasuries and EE bonds do well under deflation. 1 %. This person would then allocate the remaining 10% to a treasury bond ETF. EE bonds have an effective 3. Dec 9, 2023 · The role of bonds are used to diversify your portfolio and to reduce volatility. Started laddering into I-Bonds. As I age and convert my portfolio from stocks to bonds, I want "space" in my tax-advantaged accounts to do this conversion without causing a taxable event. I have heard others suggest that it is best to hold bonds in a taxable account. There are "publicly" available bonds through a brokerage, but that's not the same thing. I think it makes sense to go from putting 100% of my investable cash into equities to some portion going towards higher yielding bonds as well. Bernstein's IF YOU CAN does not seem to recommend corporate bonds: "This raises a more subtle point, and one that is often not well understood by even sophisticated investors, which is that the interests of the owners of stocks, who are willing to take considerable risks to get higher returns, and the owners of bonds (or, in the case of a small business, the folks loaning it money), who care This is not what Bogleheads do. I drop the international bond, but maintain the overall stock/bond allocation. (The first If the main argument for Bonds is due to its dividends and not it’s growth, why not park money in a HYSA in a high interest rate environment. The purpose of bonds for me is to have money I know will be there without loss in case I need it. For example, if you have $5 million in your retirement fund and your annual living expense is only $70k, there is no reason to hold $3 million in bo That's where I deviate from the default total bond market rec (BND), which is about 25% corporates. Bond funds are priced by the value of the bond contents. A bond is a fixed term investment. For this reason, my plan is to stick with treasury funds in my own portfolio. Why do you want to hold bonds? My current goal for allocation is about 65% US, 25% international, and 10% bonds. Is there a better one out there? Granted the average annual returns over the life of the fund is 5. With rising interest rates like the US recently had, the value cross because existing bonds are worth less (I'd rather buy $100 of bonds paying 4% than 2%, so the 2% get their price adjusted down to make up for the lower yield). Neither of these products are similar to muni bonds because they have the “full faith and credit” backing that muni bonds lack. They're basically saying that (1) over time, moving your emergency fund into i-Bonds is relatively low risk; (2) unlike HYSAs, the "insurance premium" of your emergency fund is now measured in limited accessibility; (3) also unlike HYSAs, I Yes some bonds have time adjusted yields…. poor performance Just like bonds, you can't arbitrarily sell bond funds at any time and avoid losing money. That was offset somewhat by a few percent of dividends. So you buy the 10 year bond because you get ~4. You are also completely sidestepping interest rate risk and they are tax sheltered investments. Was the past 10 years just a terrible time for bonds? Open to any and all suggestions. Of course expect less returns if you take on less Generally speaking I would say no. Q: Which Bonds: Let's say I'm convinced -- what kinds of bonds do you hold and recommend? I use 50/50 nominal/real bonds (e. I’ve been wondering why BND is the default go-to bond fund for bogleheads when it seems less than optimal from the research I’ve read. And the rate of growth of holding bonds isn’t something to sing about anyways. Last year in particular, that fund had a 10%+ return - yields went down, NAV went up. If you’re smart enough to reduce your allocation to stocks and increase your allocation to bonds, somebody else is reducing their allocation to bonds and increasing their allocation to stocks. They not only have higher yield than TIPS of any maturity (all the way to 30-year TIPS even) but they also have no interest rate risk (while e. I would put your cash into whatever pays the highest yield on a given day, month, or First, because the long run is a series of short runs, and during many short periods, bonds have provided higher returns than stocks. $100 in bonds earning 4% will not return the same as index funds in good or even decent market conditions. It walks you through a number of examples of different stock/bond allocations in different markets and how to figure out your own unique allocation, but overall, an 80/20 or even 60/40 stock/bond allocation can yield slightly higher annualized returns in the long run than a 100% stock. The answer to your question is that it depends on your risk tolerance. I-bonds are far, far superior to any other inflation-indexed investment out there. In all cases, you own the same The bond returns come from their interest payments to you. You don’t need to avoid them but you don’t need to go out of your way to get them either. 43% B corporate bond yield: • 8/3/2020 - 5. I want the bonds for stability in the case of market swings. but thst wasn’t my point. That is not what I want from bonds. I would never buy a really long term fund because of the volatility though. I don’t only sell bonds only for spending cash, I also sell them for the diversification benefit of rebalancing (which is super easy to do with one click using a bond fund in a retirement account), so it’s important to me that be easy. In general, it isn’t a Boglehead principle, but it is commonly held belief among a significant minority of Bogleheads nonetheless for international and especially so for global bonds The argument is something like global bonds do not adequately compensate for added risk of default thus it is an inferior asset to just US bonds. I am 28 and my asset allocation is 70% stocks 25% bonds 5% gold. $5K a year into a segregated HYSA for the next car - not purely EF $20K in HYSA for homeowner emergency expenses - roof, heatpump, etc. bond allocation at 30% 10 years post-retirement, 20% 10 more years after that, and then hold steady or reduce further based Properly constructed with a bond/bond fund portfolio that is duration-matched to your liabilities (ie, you buy bonds that are the appropriate duration for when you need to spend your money), there is minimal, or zero, risk in them. Fund buys 10 bonds. 60-40 just because that’s what the vanguard tdf uses, and because the ratio has mostly been anywhere from 40-60 during my lifetime. If you are a Boglehead long-term buy & hold investor, one year’s performance is inconsequential. . My actual (11 years retired, age 66) is about 76% US, 21% International, 3% cash and bonds. Dec 22, 2024 · I hold two bonds, one zero coupon and one SGE bond that pays 5. The issue with bond funds when rates are rising is that it forces them to basically "Buy high, Sell low". 10%. … but what I have gotten from r/Bogleheads is insights into umbrella policies and bond ladders and tax efficiency and international exposure and rebalancing and backdoor and mega back door and etc etc etc. 19% There are bonds that are yielding high single digits to teens now. They also carry default risk. It is a global bond fund holding both government and corporate bonds, hedged to EUR, with an average duration of 6-7 years - a fairly solid choice for a "I want long-term exposure to the bond market as a whole but I don't want to sweat the details"-type scenario IMO. , March 2020) or not decrease as much as equities (e. Being retired, I don't really need much EF other than the car and home expense EF. And some people like to just maintain their asset allocation at the same levels among all accounts. They're usually only worth it if you're in one of the highest tax brackets. I have been just mindlessly adding 10k in I bonds for 3 years. Bonds are not risk-free, but they have less risk than equities, and the risk is different. The coupon and social security will cover my living expenses and more until I die. You also benefited from an equity market. With bond funds you have no control of market forces that can cause losses at any given time. Wife and I are 30 and 31. Thanks! I say no. The last time I checked, "junk bonds" or High Yield bonds were under 2% of the publicly purchasable bond market. However, you can deviate from this rule if you have a large amount of money in your retirement funds, far exceeding your living expenses. Bond funds are priced the same as bonds. BBB corporate bond yield: • 8/3/2020 - 2. Bonds that fall below the maturity range for the fund will be sold for a par value that is below face value, and then the fund would buy a bond at the top end of the maturity range. The expense ratio on the 2 additional bond funds are . Reply reply Remember that you're not buying bonds for the yield or even the total return (even though those are helpful), you're buying bonds for those crises like 2000-03, 2008-09 and 2020 when the stock market crashes and the fed starts cutting rates causing intermediate and long term treasury bonds to rally, smoothing the ride and letting you rebalance into stocks when they are especially cheap. While most 20-30yos will likely do just fine with 100% equity, here are two main reasons to hold bonds: Shorter investment horizon <10 years. Given this, the thread has since been renamed to reflect this broader discussion. Of course bond funds can be down over a 3 year period. SWAGX is a mutual fund, not an ETF, but really almost all of a bonds return is from dividends, so the structure doesn't really matter much, you don't really get anything from holding a bond ETF vs a Mutual Fund. state, so I’m considering state general obligation bonds, whose distributions will be tax exempt. Is this a good way to try to get better returns out of your bond allocation? Theoretically if there were more investment grade bonds in your mix it will give higher yields than treasuries of the same duration. Hedging both sides, as it were. Most people recommend just not holding bonds in taxable. The primary purpose of bonds and bond funds is for income. The point is for the long term. Bogleheads are passive investors who follow Jack Bogle's simple but powerful message to diversify and let compounding grow wealth. The Total Bond Fund is a decent bond fund, but is uncorrelated with the stock market because of short term and corporate bonds. The bonds in my retirement portfolio are split between a long term treasury fund and the total bond market. 35% • Today - 6. There is a reason you can only get them as a US citizen at a limited amount each year. Choice excerpt from Mr. Get the bond fund same way you would with stock funds. Apr 14, 2021 · Lots of information now is included about how to get I Bonds, how to configure Treasury Direct accounts, how I Bonds can fit into short and long term planning goals, etc. Age minus 20 for bonds is a good rule-of-thumb. We hold cash for day to day use, a cash emergency fund, and a mix of stocks and bonds based on our goals, age, and risk profile. Holding bonds long term may cause you to lose hypothetical yield if the rates go up. I’m the same age as you. The previous section, titled Why thinking of individual bond principal return as "safe" is misleading is also a good read. 10. Then I guess I just don't understand what point you're trying to make. The evidence seems to suggest that int'l bonds are unlikely to help or hurt the portfolio. true. That article fails to impress. The situation we're in currently however, does not warrant anyone owning bonds unless they absolutely need to own them for fixed income. As far as Bonds go, sure, you can own them and without getting into a VineViz argument of 20% being in LTT vs. Asset allocation (wiki) . Strictly evaluating the returns of bonds: investing in bond funds with durations less than your investment horizon has less price risk (lower duration means prices are less sensitive to interest rate changes or other factors that can significantly affect bond performance like inflation) but has more reinvestment risk because you can’t lock in a yield for as long. 10% is in individual stocks Rest are in mutual fund. One has inflation protection, the other guarantees return, neither of which is true of muni bonds. My sign seems to be Blackrock Growth. The price of the bond fund should be stable and only change in a meaningful way if interest rates change. Generally speaking, Bogleheads don't recommend I-bonds as an investment at all. I’ll pull from VT in good times and fall back on the short term bonds in downturns. A total bond index is used by many investors, which has an average duration of 6-8 years typically, and a more advanced method that is in line with matching your investment horizon would be to use long term (20-30 year) treasury notes or, TLT etf etc. 52% • Today - 9. Personally, I have no use for them, as I keep bonds in tax advantaged space, and i’m okay with using an HYSA for emergency funds rather than trying to squeeze out some tiny gains. Already put annual bond allocation amount into this. yet they have high risk Bonds are far less risky than stocks, it's that simple. It lost 16% in NAV last year. My simplified target three-fund portfolio that loosely follows VFIFX is: VTSAX (US stock index): 54% Bonds offer diversification to a portfolio because they are imperfectly-correlated with equities. pared to a bond fund with reducing your risk, you just don't get the potential for the value of the fund to increase. However, for retirement planning, a higher bond portfolio does not imply less risk. Buyer B decides to buy 1,000 shares. If I didn’t, I would have my entire bond allocation as a long term treasury fund. Bond ETF's have professional bond traders, that know how to do it, and can interact with the various bond desks. Research things before you buy them. those 30-year TIPS could easily lose 20% in a bad year). My plan is to move about 7-10 years worth of expenses to a MMF (or maybe even a short term corporate bond fund) in my 50’s (in a pretax retirement account) and keep the rest in VT. You own (1000 your shares/1,000,000 fund shares) * 10,000 bonds = 10 bonds. Many people dismiss bonds based on recent history and theoretical expected returns. S. The closest we come to bonds is having a larger emergency fund in a money market fund. Seems like the returns are super low for the “go-to” Boglehead fidelity fund. 5% interest rate at 20 years. Bonds usually but not always refuce your stock market fall. I’d prefer if they just held market weights though, but a home bias isn’t a bad thing, especially as a US investor, and the bias is small. You will get the money that you were expecting, on the day you were expecting it. Duration would depend on your personal goal(s), time horizon, risk tolerance, and subsequent asset allocation. 36. Avoiding the higher tax drag on bonds means I should hold bonds in a tax-advantaged account. This is because with insufficient returns, you won't actually have enough money. 375% coupon. Bonds % equals age where you would have a 30% in bonds right now. If I want to keep that money in bonds what's recommended?. Now the bond fund has 1M shares again and owns 10,000 bonds. Interest rates fall, and all those 9,990 bonds bonds become worth $110 each. As someone with a 20-30 year investment horizon, I currently have an all-stock portfolio but I was thinking of using EDV for a small bond allocation (5%) since long dated treasuries would serve as the best If you were in a bond fund and decide you want your principle back after interest rates go up without any more risk, you can use sell your bond and buy Zero-Coupon Bonds. Single name bonds are not really suitable for retail investors with a small portfolio due to trading cost and lack of liquidity. This was a better deal than treasuries before interest rates went up due to being tax free. Right now I am about 5% in a Virginia Tax Free Bond rate. I started investing couple of years ago. In this approach, while you should go on to increase bonds until retirement (0% to 40% bonds from 15 years before retirement until retirement) , a few years after retirement, you should start increasing stocks again (e. Might change my mind. Bogle: [A]s we age, we usually have (1) more wealth to protect, (2) less time to recoup severe losses, (3) greater need for income, and (4) perhaps an increased nervousness as markets jump around. If you live in a state with income tax. The popular wisdom among Bogleheads is international bonds don’t offer much benefit. This is hard for people to understand but, if you build a ladder of short-, intermediate-, and long-term bonds, calibrating the maturities to the expected timing of your future spending obligations, moving wealth down the ladder as you spend it, and balancing a constant duration, that is going to perform roughly the same, on average, as a bond fund of comparable The brilliant Bogleheads who concluded that a buying and holding simple three fund portfolio with a total bond fund is best for the long term were keenly aware of the risks and rewards of trying to time the bond market to juice returns, so they are doing you a favor - don’t chase yield. No bonds. mpqvw hipuyk rurpjs kbqdli gopovtz orcccmq hzmsts qgqc zyvok czwuqb oxlht apclzj dnxp tjmv oqpltc