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  • #16




    You must be a new reader ? With a financial plan and not investing anything you will need within 5 years, bonds for the long term are irrelevant. This is not aggressive, merely logical, and the way my mom, my kids, and all of our clients are invested.
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    I have not invested a penny in bonds so far, ever. When I first started investing in USA 28 years ago, I knew I wanted long term max capital appreciation and bonds were unlikely to do it. Even though I am approaching my retirement age I still don't invest in bonds or have converted stocks to bonds. I have enough in savings to live for a year. I also get regular distribution checks from my investments that I can use to live my life rather than reinvest, should it becomes necessary. So I am 100% invested in stocks and commercial real estate.

     

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    • #17




       I’m curious why not have it all in a taxable brokerage account and put it to work?  Or why not invest in a rental property somewhere that you like to vacation?  I know for me, if I had that kind of cash I’d buy a place in Hawaii and rent it out 11 months of the year and vacation there the rest of the time.
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      Yes, I likely will put it in our taxable account. It started out as our emergency fund, then EF + savings for quarterly estimated taxes. I've thought about buying a vacation home (actually going to Hawaii in 2 weeks!), but came to the conclusion that I'd rather use the carrying costs of a 2nd home to travel to new places.

       

      As for bonds vs no bonds: when it is has been clearly shown that you can get higher return with lower risk, why would you NOT include bonds?

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      • #18
        I agree with not buying the vacation home and diversifying your travel.

        I think there are a lot of great options. I am a few years older than you and have a similar size cash cushion that grew under similar circumstances. I am very comfortable with it. For me, it means that if my wife and I both quit or lose our jobs tomorrow, we have nearly four years of living expenses before needing to tap the long term accounts, time enough to figure out the next move. I consider it a great luxury (albeit a potential opportunity cost) to have a nice cash cushion. Most here are younger and do not agree.

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        • #19
          Bonds have actually had very high risk here lately being so low, and just made the largest historic move ever off that low. If inflation indeed picks up and we dont just continue the downtrend in rates (totally possible), then bonds will be less risky going forward. For bonds, you know for sure you're absolute return, its the coupon rate. They have a pretty terrible risk/reward, and outside of muni bonds in my taxable (which have also taken a bath of course) I also dont have any bonds. If we get a few more hikes and everyone starts to lament bonds or we look like we're going to overheat, I'll start to move to bonds.

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          • #20


            As for bonds vs no bonds: when it is has been clearly shown that you can get higher return with lower risk, why would you NOT include bonds?
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            I suppose you can show me your stats and I'll show you mine. What lowered risk are you talking about, btw? The risk our clients are protected against is the risk of not receiving optimal returns on their investments and of behavior. What risks are you speaking of?
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #21

              blowhard wrote:
              As for bonds vs no bonds: when it is has been clearly shown that you can get higher return with lower risk, why would you NOT include bonds?
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              You cant get higher returns with lower risk, you get higher "risk-adjusted" return, which while very important is certainly not the same. Its also dangerous to continue to forecast past mixed portfolio returns (60/40) into the future as the last 35+ years have been a bull for both sides of the equation and the current setup is not that way (though who knows of course).

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              • #22





                Johanna – no bonds? That seems pretty aggressive. If I add another $350k stocks to my taxable account that would bump me up above 75% equity. No plans to retire in the next 10 years, charitable giving is already earmarked as are 2017 contributions. 
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                You must be a new reader  ? With a financial plan and not investing anything you will need within 5 years, bonds for the long term are irrelevant. This is not aggressive, merely logical, and the way my mom, my kids, and all of our clients are invested. See:

                Bonds: What are they good for? Part I

                Bonds: What are they good for? Part II

                (With gratitude to @physicianonfire who published my articles!)
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                She means a new reader of her writing. A bond-less portfolio is an opinion (hers) not dogma and not recommended by the vast majority of investment authorities for reasons discussed ad nauseum elsewhere.

                But you're right that you need a written investment plan. If you feel qualified to make one yourself, do that. Otherwise, hire an advisor to help you. Be aware if you hire Johanna, the recommended plan won't have any bonds in it. If you hire somebody else, it probably will.

                Portfolio construction is a controversial subject, but I generally recommend you dial down the equity risk a bit until you've invested through at least one bear market. If you had no trouble tolerating a 60-90% stock portfolio in a big bear market and were actively buying near the bottom, then maybe you're one of the few that can tolerate a 100% stock portfolio. Here's a counter point to Johanna's links:

                https://www.whitecoatinvestor.com/in-defense-of-bonds/

                Don't take on more risk than you need, want, and can handle. Johanna's right that your main risk may be that your investments don't grow fast enough to meet your financial goals. However, your main risk may also be your own bad investment behavior in a bear market or that stocks have terrible long-term returns. Bonds help protect against those two risks.

                 
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

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                • #23




                  Be aware if you hire Johanna, the recommended plan won’t have any bonds in it. If you hire somebody else, it probably will.
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                  Not true. As I've written about (ad nauseum  ), our clients who have planned cash needs within the next 5 years all "own" high quality corporate bonds timed to mature at date of need. We simply don't speculate on bonds but use them for their intended purpose - not as an investment but as a way to guarantee liquidity when you need it with a higher return that our clients would get from MM accounts.

                  I have yet to hear anyone successfully defend the counter to my position, which always includes a financial plan in place before determining short-term (next 5 year) needs to be kept liquid and long-term (over 5 year) needs to be invested in an appropriately-diversified portfolio of equity funds. If you do not need to liquidate your investments for at least 5 years and you are working with a planner who understands these principles of investing, why the heck would you panic in a downturn? Our clients don't because we constantly reinforce the plan, not the returns (which do quite well, btw). I am a financial planner first. We use investments as tools to meet the client's goals, as dictated by the plan in place.

                  I can assure you that any fees our clients pay us for planning (which include all investment management) are far outstripped by their long-term returns which result from having a relationship with an engaged, year-round planner.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #24


                    As for bonds vs no bonds: when it is has been clearly shown that you can get higher return with lower risk, why would you NOT include bonds?
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                    Beyond 20+ years holding period, stocks always outperform bonds, often by wide margins. This has been shown by multiple studies. So if you plan to retire at 65 or beyond or have no need for the money in that time frame it is better to stick more or all in index stock fund than bonds.

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                    • #25





                      As for bonds vs no bonds: when it is has been clearly shown that you can get higher return with lower risk, why would you NOT include bonds? 
                      Click to expand…


                      Beyond 20+ years holding period, stocks always outperform bonds, often by wide margins. This has been shown by multiple studies. So if you plan to retire at 65 or beyond or have no need for the money in that time frame it is better to stick more or all in index stock fund than bonds.
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                      #actually, the longer the time frame the worse bonds perform on a real real basis. If you plan to retire at an accepted normal age a normal distribution shouldnt matter, but if planning an early retirement one should have a very specific plan to deal with volatility and normal living expenses as you have a need for a higher than traditional stock/bond ratio.

                      The real problem with bonds is inflation. They rarely have a sizable nominal loss but regularly lose out to inflation. Best to buy them when inflation seems like it only goes up (early 80s). Which is certainly not today.

                      If you have enough principal and know your spending it of course doesnt matter at all.

                       

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                      • #26


                        but if planning an early retirement one should have a very specific plan to deal with volatility and normal living expenses as you have a need for a higher than traditional stock/bond ratio.
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                        I'd like to discuss this with you sometime. You seem to be a very reasonable person (i.e. I agree with you :-)) in most other areas.
                        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                        • #27





                          but if planning an early retirement one should have a very specific plan to deal with volatility and normal living expenses as you have a need for a higher than traditional stock/bond ratio. 
                          Click to expand…


                          I’d like to discuss this with you sometime. You seem to be a very reasonable person (i.e. I agree with you :-)) in most other areas.
                          Click to expand...


                          Sure thing, but maybe that came off wrong. Meant you should have even less bonds and more stocks for longer horizons, it lasts longer, and the more bonds you pile in the higher the chance of running out of funds.

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                          • #28


                            Sure thing, but maybe that came off wrong. Meant you should have even less bonds and more stocks for longer horizons, it lasts longer, and the more bonds you pile in the higher the chance of running out of funds.
                            Click to expand...


                            Actually, I think I read it wrong. Whew!
                            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                            • #29
                              Interesting discussion. I just finished Bernstein's Four Pillars of Investing however and he makes some great points about long term stock returns perhaps not having the advantage over bond returns that they've enjoyed over the past 30 years. Basically, the high current valuation of stocks means that the expected return over the next few decades is likely to be lower than in the past. He recommends no more than 75% equity positions, no matter what stage of accumulation we are in.

                              As an aside, foreign equities are currently not at such lofty prices, and thus according to Bernstein's logic would have a higher expected return over the next few decades. I am personally planning to put the Vanguard admiral international stock index in to my taxable soon, as well as devoting a larger space to foreign equities in my deferred accounts....

                               

                               

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                              • #30




                                Interesting discussion. I just finished Bernstein’s Four Pillars of Investing however and he makes some great points about long term stock returns perhaps not having the advantage over bond returns that they’ve enjoyed over the past 30 years. Basically, the high current valuation of stocks means that the expected return over the next few decades is likely to be lower than in the past. He recommends no more than 75% equity positions, no matter what stage of accumulation we are in.

                                As an aside, foreign equities are currently not at such lofty prices, and thus according to Bernstein’s logic would have a higher expected return over the next few decades. I am personally planning to put the Vanguard admiral international stock index in to my taxable soon, as well as devoting a larger space to foreign equities in my deferred accounts….
                                Click to expand...


                                And in 30 years, maybe I'll add him to my (nonexistent) list of perrenially successful market forecasters.
                                Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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