I DON’T WANT BONDS in my portfolio—or, at least, not to the degree traditionally recommended in financial planning guidelines.
For years, I had accepted the premise that bonds should be included in a serious investor’s portfolio. Not that I necessarily followed that dictum. But I accepted the idea that young people should have a low percentage in bonds, and increasingly greater percentages through middle age and retirement.
I kept thinking that someday I’d come around to more bonds, but not now. The years went by. I took early retirement at age 62 and had zero dollars in bonds. Still relatively young, I felt. I’ll definitely think about those bonds down the road. Four years later, after my divorce was finalized, I purchased a blended stock-bond fund. That raised my bond allocation from zero to 1.7%.
Ten years later, my bond allocation reached a lifetime high of 8.7%. About that time, I noted that my blended fund, with both higher fees and lower annual returns, was a drag on my portfolio. I moved two-thirds of the fund into more productive pure stock funds. I accepted the idea of diversification, but chose diversity in large, mid and small cap funds, in both growth and value funds, and in total market funds.
“Later” finally came in 2017, after being reminded for the umpteenth time that I was low on bonds. I moved some money from my cash position into a total bond market index fund. My bond holding quickly moved from 5.3% to 8.6% by early 2018. Now, I’m getting with program, I thought.
Well, this euphoria didn’t last long. I did some serious thinking about my risk tolerance and my annual income, and began to question why I had made the long-postponed move to bonds in the first place. I’ve now reverted to a lower bond component. Bonds are down to 8.2%, with full confidence I’ll get to my new bond target in the sub-5% range.
By no means am I advocating that all, or even most, retirees follow my example. But some readers may feel like “cheating” a bit on their bond allocation. To “gamble” on a low or zero bond component, you should probably possess most of the following qualities:
Dennis E. Quillen is a retired economic geographer and university professor. In addition to blackjack, he loves long-term investing. His previous articles were Bouncing Back, Starting Over and Getting Comped.