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  • Bond paradigm shift

    I am fairly new to the investing world. I have been reading as much as I can just to gain an understanding. I am having a hard time finding resources on what I am seeing on various forums including this one which is a move towards a higher percentage of equities in early retirement (and for some even late retirement) than has traditionally been recommended in the books and resources I have been reading. Can someone provide me with some good books and online resources for this theory of investing? I would really love some audio versions (audiobooks, podcasts) if that were possible but that seems harder to obtain.

  • #2
    Sorry that should have said many years from retirement (and for some those close to retirement).

    It should not have said early in retirment (and for some late in retirment)

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    • #3




      I am fairly new to the investing world. I have been reading as much as I can just to gain an understanding. I am having a hard time finding resources on what I am seeing on various forums including this one which is a move towards a higher percentage of equities in early retirement (and for some even late retirement) than has traditionally been recommended in the books and resources I have been reading. Can someone provide me with some good books and online resources for this theory of investing? I would really love some audio versions (audiobooks, podcasts) if that were possible but that seems harder to obtain.
      Click to expand...


      Yes, Nalebuff and Ayers Lifecycle Investing is exactly the book on this topic, diversification over time not just assets basically. If you can find the paper, which google may have, its probably more efficient.

      Its not so much a theory as a recognition of an imbalance of capital and equity exposure over time.

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      • #4
        Wade Pfau is my Retirement Planning guru. Google his name and "rising equity glidepath."

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        • #5
          Jeremy Siegel Stocks for the Long Run

          Nick Murray Simple Wealth, Inevitable Wealth (current version not available on Amazon)
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            I disagree. Bonds in a rising interest rate environment are not a toxic asset class. Sure they won't return much, (the return you get from a bond or bond fund is simply the yield at the time you buy it), but you don't own bonds for return, you own equities for that. You own bonds to reduce the volatility of your portfolio so you don't panic sell equities in a crash. If you don't need that reduction in volatility (which most people do), you don't need bonds. Besides it's not rising interest rates that causes problems for bonds, it's inflation. From 1940-1980 bonds returned an annualized 2.85%, almost doubling your money. Not bad for the worst bear market in bonds ever. But in real terms they lost a total of about 40%. Again, you do not own bonds for return. Saying bonds in a rising interest rate environment are a toxic asset class is over the top and simply wrong. Used properly in a portfolio, they are a valuable asset class in any interest rate environment.

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            • #7
              Ben Carlson shared an article this morning about a bond bubble.  Good explanation of bond bubbles and inflation.  http://awealthofcommonsense.com/2017/10/bond-market-bubbles-are-not-what-you-think/

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              • #8
                I consider and use bonds when I did as cash equivalents. You don't lose any money on what you expected if you let them go to maturity. Of course you're missing out on higher interest rates, but you can't get that by selling the old bond and buying a new one. However I am too lazy to buy individual bonds and while I did have some money in Vanguard mutual fund bonds, that seems to give you the worst of the system. While I wasn't selling any of it, I would lose value in the fund because other people were. If I am figuring that out correctly.

                So now all I do, with the luxury of hopefully adequate through lean times pension payments, Is ladder CDs. If I had a lot more money I needed to do that with I would probably ladder actual bonds. Could someone a lot smarter than me comment on bond funds as opposed to bonds? Is there a fund that does what I would like? Without the hassle of registering or going through a broker other than The mutual fund, let me lock in bond rates at one time and only suffer the consequences of selling before maturity if I choose to do so?

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                • #9




                  I consider and use bonds when I did as cash equivalents. You don’t lose any money on what you expected if you let them go to maturity. Of course you’re missing out on higher interest rates, but you can’t get that by selling the old bond and buying a new one. However I am too lazy to buy individual bonds and while I did have some money in Vanguard mutual fund bonds, that seems to give you the worst of the system. While I wasn’t selling any of it, I would lose value in the fund because other people were. If I am figuring that out correctly.

                  So now all I do, with the luxury of hopefully adequate through lean times pension payments, Is ladder CDs. If I had a lot more money I needed to do that with I would probably ladder actual bonds. Could someone a lot smarter than me comment on bond funds as opposed to bonds? Is there a fund that does what I would like? Without the hassle of registering or going through a broker other than The mutual fund, let me lock in bond rates at one time and only suffer the consequences of selling before maturity if I choose to do so?
                  Click to expand...


                  A physician after my own heart. Bond funds are used as a substitute for cash by many, but that is, imo, inappropriate, as your experience has shown. The best course is to not worry about earnings in the short term (< 5 years) and focus on liquidity instead. Laddered CDs or individual high-quality bonds are most appropriate if you have money saved for specific short-term purposes (> $100k) and know when you will need the funds. I understand not wanting to research bonds as it does take a bit of legwork.

                  This post may be useful: When Low Interest Rates Are OK
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Yes, but it's only a temporary drop. Hold the bond fund for it's duration and you get your money back because the maturing bonds are reinvested at the higher interest rate, so those higher coupons make up for the price drop.

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                    • #11
                      Bond funds are just a collection of bonds, so they behave essentially the same. When interest rates go up, the price of the bond fund falls temporarily. The price of an individual bond also falls temporarily, but you don't see it because it's not being marked to market. If you go to sell it, it would be. Hold on to the bond fund for it's duration and you get your money back, same for the individual bond.

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                      • #12




                        Jeremy Siegel Stocks for the Long Run

                        Nick Murray Simple Wealth, Inevitable Wealth (current version not available on Amazon)
                        Click to expand...


                        I read the Simple Wealth one and switched to all equities going forward.  I consider my state pension and SS my fixed income assets. But I find this statement from his site to be a bit much:

                        it is probably the only book of any consequence that demonstrates the real value of an investment advisor – and that proves to people that they can’t achieve lifetime investment success without such an advisor. 

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                        • #13


                          I read the Simple Wealth one and switched to all equities going forward.  I consider my state pension and SS my fixed income assets. But I find this statement from his site to be a bit much: it is probably the only book of any consequence that demonstrates the real value of an investment advisor – and that proves to people that they can’t achieve lifetime investment success without such an advisor.
                          Click to expand...


                           , it is a bit much. When recommending his book, I usually add the caveat to ignore all of the 1% advisor references and just read it for the meat, which is very valuable. I hadn't paid attention to that being on his site, but I guess the veracity of his statement depends on how you define lifetime investment success.
                          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                          • #14
                            The thing about volatility smoothing is that its relatively unimportant when you're young. You're smoothing what amounts to less than 5% of your ultimate portfolio in the end. Have to think long term about it. Your first few year total portfolio will be daily volatility even in a 60/40 in retirement in an absolute dollar sense.

                            What you do want is your equity exposure to be spread out over as much time as possible to limit your exposure to any single periods volatility. If you do as most people do, you end up with the majority of your equity nest egg at risk during the most important last years before retirement and first few after at risk. Better to reverse that when portfolio value is smaller and time is on your side.

                             

                            https://www.amazon.com/Lifecycle-Investing-Audacious-Performance-Retirement/dp/140016690X

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                            • #15
                              There is a class of funds/products that can do this. They are called defined maturity bonds. Fidelity I believe offers defined maturity municipal bonds and Guggenheim offers something called bulletshare ETFs which are corporate bond ETFs with a specified end date. I don't any defined maturity funds but it's something I'm thinking of doing in the future. It seems like it would be more for someone who wanted to save money for a down payment on a house or a wedding or some other large expense with a set date and I don't have that now.

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