1. A couple of years ago 90% of Bogleheads would have said to buy bond funds for safety and there's no need to bother with individual bonds. Now 90% of Bogleheads will tell you you're crazy if you hold a bond fund and that only TIPS and Treasuries are worthy of your consideration. Tune in to next week's episode to see what everyone is saying then.I generally understand the core concepts of investing in the stock market, but bonds are still just really confusing overall to me. To be honest, I've seen so many different terms (TIPS ladders, yield, par, coupon, etc.), and various different types of bonds (federal, municipal, corporate, funds, etc.), that I don't really know where to start. I was wondering if any folks on here could help break down the core concepts about bonds that are important to understand for general investing and retirement, or alternatively just point to a good resource on the topic for beginners.
Additionally, I have a few specific questions about bonds pertaining to our current investment strategy. For context, my wife and I are 33, and have a baby. I would like to retire as soon as possible without depleting our assets (my target is $4M savings with a safe withdrawal rate of 3% based on the data in Early Retirement Now). We have $1.1M currently saved, with approximately half in a taxable brokerage account, and the other half spread across tax-advantaged accounts (standard and roth 401ks and IRAs).
Our asset allocation is as follows:
-> 90% of total assets Stock Market
---> 68% of total assets US Stock Market (75% of 90% stock market allocation)
---> 22% of total assets Intl Stock Market (25% of 90% stock market allocation)
-> 10% of total assets US Bond Market
We split our intl funds evenly across taxable and tax-advantaged accounts. Our bond fund is held entirely in a tax-advantaged account.
- My understanding is that bonds are supposed to provide some stability and asset preservation to a portfolio. However, because we're invested in a fund tracking the US bond market, rather than owning individual bonds themselves, our bond investments have lost value over the last few years. I'm not concerned about this from a short-term sense, but if bond funds can lose value just like the stock market, then what is their actual purpose in an investment portfolio? When should one own bond funds vs. actual bonds which truly do hold their value? Does a bond fund actually make sense for our situation? Along the lines of the more general question above, what types/categories of bonds in general should we own?
- We store our bond funds entirely in my wife's 401k based on Bogle's advice in Common Sense on Mutual Funds. However, since the stock market generally has higher returns than bonds, I'm wondering if this actually makes sense. Are we better off maximizing the tax advantage for stocks and their higher returns, and just paying taxes on bond returns?
- Given my goals of early retirement, am I correct in assuming that I shouldn't go much over 10% bonds at any point in order to be able sustain a long retirement window and preserve an inheritance for our child (fully understanding that this increases the risk of a market crash pushing out my retirement age)?
2. If you go by what should have higher returns, nobody would hold bonds or bond funds anywhere. In reality if you decide to hold them, deferred is the most tax-advantaged location for them.
3. A little longer ago, a decade or two, most Bogleheads recommended things like age-in-bonds. Now everybody is into 80, 90, 100% equity allocations. Again, tune in to next week's episode to see what everyone is saying then.
Statistics: Posted by tibbitts — Sun Aug 11, 2024 6:34 pm — Replies 1 — Views 89