Home     Forum     401k     401k Rollovers
    Register   Login   Members   Search   FAQs     Recent Posts    




Question: Future Bonds Allocation

Reply to topic
Money Talk > Retirement Planning

Author Thread
jbcentral
New Member


Cash: $ 1.95

Posts: 9
Joined: 03 Feb 2012

Question: Future Bonds Allocation  Reply with quote  

My wife and I will each be 50 yrs. old next month and we currently have 100% of our retirement savings ($850,000) invested in stock mutual funds within our 401Ks and IRAs. While I realize my equity position is considered aggressive, with a total of 1/3 of our portfolio in International Funds (50% developed/ 50% emerging), I do not have any issues sleeping at night, etc….

That said, given we are targeting retirement in approximately 15 years, would now be a good time to begin diversify our portfolio and dollar-cost averaging 4%/yr. into bond mutual funds (i.e. Vanguard's Total Bond Market Index fund) thereby achieving a 60% Bonds/40% Stock allocation by age 65?

Thank you!
Post Sat Nov 23, 2013 3:50 pm
 View user's profile Send private message
clydewolf
Senior Member


Cash: $ 50.25

Posts: 248
Joined: 27 May 2012

Re: Question: Future Bonds Allocation  Reply with quote  

quote:
Originally posted by jbcentral
My wife and I will each be 50 yrs. old next month and we currently have 100% of our retirement savings ($850,000) invested in stock mutual funds within our 401Ks and IRAs. While I realize my equity position is considered aggressive, with a total of 1/3 of our portfolio in International Funds (50% developed/ 50% emerging), I do not have any issues sleeping at night, etc….

That said, given we are targeting retirement in approximately 15 years, would now be a good time to begin diversify our portfolio and dollar-cost averaging 4%/yr. into bond mutual funds (i.e. Vanguard's Total Bond Market Index fund) thereby achieving a 60% Bonds/40% Stock allocation by age 65?

Thank you!

Congratulations on your saving efforts, you are doing well.

Is this a good time for you to have some bonds in your savings allocation?
You should probably have some bonds in that mix. While bonds do not grow as rapidly as stocks, they can add some stability to your savings. You can acquire your bonds by transferring some of your savings from stocks to bonds.

Do you have a ROTH IRA? A ROTH IRA would be a good place to put some of your new contributions invested in stocks. Using a ROTH IRA, you investments can grow tax free. Stocks should provide the most growth, and tax free is where you want the most growth.

To have tax free distributions from your ROTH IRA, you must be at least age 59 1/2 years old and you must have had a ROTH IRA for at least 5 years. It is a good idea to do some of this saving now and satisfy that 5 year requirement.

The down side of the ROTH IRA, is you pay tax on your contributions now. And at age 50 you are near your maximum income earning and tax years. The ROTH works well when you are in the 15% income tax bracket.
Post Sat Nov 23, 2013 5:09 pm
 View user's profile Send private message
coaster
Senior Advisor


Cash: $ 1626.30

Posts: 7990
Joined: 11 Oct 2005
Location: Wisconsin
 Reply with quote  

Bonds prices have been artificially supported, and their yields artificially suppressed by the Federal Reserve's "Quantitative Easing" policies of the last severall years. You may want to wait a few years until you start reallocating your portfolio; I have no doubt you'll be able to get your bonds at a lower price /higher yield. That being said, I also have no doubt there's going to be an equity market "correction" that goes along with that. I myself don't think it's inappropriate for you to be 100% equities at your age, but maybe you might also want to think about raising some cash so you can also purchase more equities when that correction happens.

~Tim~
Post Sat Nov 23, 2013 5:54 pm
 View user's profile Send private message
rodroc
First Time Poster


Cash: $ 0.20

Posts: 1
Joined: 23 Nov 2013
Location: Charlotte
Thanks for the information  Reply with quote  

It is interesting to read what you think about investing in bonds. I think it is a good recommendation to wait for relocating their portfolio too.

Regards
Rod

links to your site belong in your profile signature
Post Sat Nov 23, 2013 7:01 pm
 View user's profile Send private message
Radix3d
Preferred Member


Cash: $ 21.60

Posts: 105
Joined: 20 Mar 2013

 Reply with quote  

I'd consider something like: https://personal.vanguard.com/us/funds/snapshot?FundId=3145&FundIntExt=INT#tab=2

These are investment grade. The yield to maturity is 1.6% which isn't amazing but the average maturity is 3.1 years so the rising interest rates wont be much of an issue. And if the stock market has a correction that wont hammer you either so i think it's a smart way to diversify.

I'd just call vanguard they have financial advisors that can asist you better than I can.
Post Sun Nov 24, 2013 5:11 pm
 View user's profile Send private message
coaster
Senior Advisor


Cash: $ 1626.30

Posts: 7990
Joined: 11 Oct 2005
Location: Wisconsin
 Reply with quote  

... and Morningstar's rating for that fund is four stars (out of five), which is pretty decent.

~Tim~
Post Sun Nov 24, 2013 6:23 pm
 View user's profile Send private message
jbcentral
New Member


Cash: $ 1.95

Posts: 9
Joined: 03 Feb 2012

Thank You  Reply with quote  

Thank you "all" for your meaningful feedback, as I am very appreciative.
Post Sat Nov 30, 2013 1:45 pm
 View user's profile Send private message
jbcentral
New Member


Cash: $ 1.95

Posts: 9
Joined: 03 Feb 2012

 Reply with quote  

After some preliminary research regarding the various suggestions, at this time, my feeling is to wait on purchasing bonds. With that being said, I do have an additional question regarding my immediate investment strategy going forward.

Over the last 3-4 yrs I have been investing 100% of my new contributions into a Euro/Pacific fund (RERGX) - allowing me to purchase additional Emerging market equities and, most importantly, undervalued European equities due to their recession. With Europe now slowly recovering, should I discontinue my current strategy and immediately start building a cash reserve to eventually purchase additional domestic equities during a future correction or should I continue to purchase European equities since they are still undervalued?

Given that Domestic Funds and International Funds tend to run in opposite 5-7 year performance cycles, and considering our current domestic bull market run is likely in its latter stage (in my opinion, 1-2 yrs remaining), if history continues to repeat itself, International Funds should
be next in-line for a very nice bull market run.

Thanks again!
Post Sun Dec 01, 2013 3:23 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 735.45

Posts: 3576
Joined: 21 May 2006
Location: arizona
 Reply with quote  

quote:
Given that Domestic Funds and International Funds tend to run in opposite 5-7 year performance cycles, and considering our current domestic bull market run is likely in its latter stage (in my opinion, 1-2 yrs remaining), if history continues to repeat itself, International Funds should
be next in-line for a very nice bull market run.


"If history repeats" is seldom a good basis. Almost all market timing is built upon historical patterns - stocastic, trending, chart patterns, yada - unfortunately tomorrows market will be driven by an event that has not yet happened. And that is wht market timing fails about 50% (and it works about 50%) - ie, the various markets are valued at about 50/50 at any time.

In your case, I would ignore timing and build wealth - use 100% equity during your wealth-building years and 50/50 during your wealth-preservation yrs (and wait a few yrs, don't cut off your wealth-building at 50, give it 5 or 10 years). Very Happy
Post Sun Dec 01, 2013 5:02 pm
 View user's profile Send private message
jbcentral
New Member


Cash: $ 1.95

Posts: 9
Joined: 03 Feb 2012

 Reply with quote  

I appreciate your response and I certainly understand your point relative to history repeating itself, etc... And thank you very much for your feedback relative to future bond purchases. I agree.

That said, however, while what I am doing is market timing, I feel more like a trend follower than a market timer - and only with new contributions - never existing funds. In fact, I am simply trying to strategically purchase equities, in this case, European equities, while they are low and undervalued while leaving my domestic equities to appreciate with our domestic bull run. In the future, my plan is to shift, and, once again, only with new contributions, to that of purchasing domestic equities when they are lower while allowing my International equities to appreciate. Therefore, understanding my current "trend following/market timing" strategy with new contributions ( as flawed as it may be Smile ), my question for any and all is whether I should continue to purchase European equities or start building a cash reserve to combine with future domestic contributions once the domestic market contracts - which it will - as it always does.

Thank you!
Post Sun Dec 01, 2013 9:01 pm
 View user's profile Send private message
oldguy
Senior Member


Cash: $ 735.45

Posts: 3576
Joined: 21 May 2006
Location: arizona
 Reply with quote  

<< That said, however, while what I am doing is market timing, I feel more like a trend follower than a market timer - and only with new contributions>>

lol - no matter which money you use or what you call it, that's Timing. Consider that 100's of "beat the market' books, programs, that have been written in the last 100 yrs. Elliot waves, fibonnaci ratios, stocastics, cup&saucer formations, head&shoulder formations, trendlining, yada. And all of it depends on extrapolating history into the future. But that is not how it works - tomorrows price's are determined by tonite's events/opinions, history has nothing to do wuth it. If history really could be used to predict the future, we would only need one small pamphlett, not 100's of books. BTW, it is liberating to finally grasp this - then you can quit trying to predict the market and concentrate on investing. Years ago I did options, various derivatives, corn futures, pennies, etc - I becasme wealthy after I QUIT that stuff. Very Happy

FYI - Several years ago there was a 23-year brokerage study on Timing. The clients that bought & held the Index got a 14%/yr return for that 23 year period. The clients that sold when the market dipped and then bought back in when it recovered got an average return of about 2.5%/yr for that same 23 yrs. It turns out that human intuition is almost always wrong. One common phrase was "I'm waiting for the market to recover so that I can get back in" - lol. Ie, after the market recovered (presumably to new highs?) the clients got back in - and bought at all time highs - the opposite of buy low, sell high..
Post Sun Dec 01, 2013 11:10 pm
 View user's profile Send private message
Radix3d
Preferred Member


Cash: $ 21.60

Posts: 105
Joined: 20 Mar 2013

 Reply with quote  

If you sit on the sideline with cash waiting for things to get cheap to invest that is timing the market and that seldom works. If you are investing in Europe because it's cheaper there that is not market timing that is value investing.
There is a direct relationship between risk and price. And it doesn't just apply to stocks but also real estate, bonds, derivatives, ect.
Post Mon Dec 02, 2013 1:51 am
 View user's profile Send private message
coaster
Senior Advisor


Cash: $ 1626.30

Posts: 7990
Joined: 11 Oct 2005
Location: Wisconsin
 Reply with quote  

Your primary allocation strategy is value. That's fine. In fact, that's a great strategy for allocation. At your age you probably also want to start thinking about risk as a secondary strategy. I'm thinking maybe 1/3 allocated to international is about the point where the secondary strategy starts overriding the primary strategy for that particular allocation. Especially since you're here also asking about bonds, which means you're already listening to that secondary strategy, whether it's influenced your allocation decisions yet or not. So instead of buying into bonds, which the consensus here seems to be that wasn't a good idea yet, maybe what your thought processes are really telling you has to do with the answer to the international allocation question, not the bonds. But wherever you choose to invest, investing in cash is almost always a poor choice (unless it's cash you know you're going to need in the next five years or so, which doesn't apply here)

~Tim~
Post Mon Dec 02, 2013 6:07 am
 View user's profile Send private message
jbcentral
New Member


Cash: $ 1.95

Posts: 9
Joined: 03 Feb 2012

 Reply with quote  

Thank you to each of you for your excellent feedback! Regarding the topic of “value investing”, that certainly seems to describe my current strategy. Moreover, concerning the “secondary strategy”, that of minimizing risk, you are correct, as I do believe I am thinking about potential risk more often as a result of my strong International allocation (hence my original question relative to bonds). That said, however, while I am definitely going to stay fully invested in equities 100% going forward, tell me, at my age, should I really be all that concerned with the risk of such a strong International allocation, especially in terms of a global economy? In fact, while I am obviously starting to think more about risk, I am not sure I am prudent in my thoughts, given the fact that International equities, specifically Europe, are still undervalued and a very good buy. To me, I feel I should resist my concern and continue to purchase these undervalued equities, even at the risk of temporarily increasing my international exposure beyond that of 1/3 of my total portfolio, knowing full well I plan to shift my allocation back toward domestic equities once the excellent buying opportunity in Europe subsides.

Admittedly, while I am definitely a “novice investor”, I ask these questions because I am sincerely trying to avoid becoming a “foolish investor.”

Thanks again!
Post Tue Dec 03, 2013 2:34 am
 View user's profile Send private message
Radix3d
Preferred Member


Cash: $ 21.60

Posts: 105
Joined: 20 Mar 2013

 Reply with quote  

I don't recommend amateur investors select common stocks themselves. At the very least you need a good understanding of GAAP and IFRS. Stick to indexes.
Post Tue Dec 03, 2013 3:25 am
 View user's profile Send private message

Goto page 1, 2  Next
Reply to topic
Forum Jump:
Jump to:  
  Display posts from previous:      





Money Talk © 2003-2016