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I’m getting ready to take my annual RMD (minus QCDs), which seems like a good time to take a look at re-balancing my portfolio. My stock percentage has crept up from 50% to 53%, and while I’ll take my RMD from my stock funds, I’m not going to spend it, so it will be going into Total International (VTIAX) and Total US (VTSAX) funds in taxable.
About 10% of my funds are in a CD ladder and a money market fund in taxable. Another 6.25% is in Intermediate Munis (VWIUX) in taxable, and 12.5% is in Intermediate TIPS (VAIPX) in my IRA. I don’t plan to change any of that. I do plan to get rid of the High Yield bond fund (VWEHX), and probably the International Bond fund (VTABX), in my IRA, which are at about 1.5% each.
So, how to split my new bond allocation? I currently have about twice as much in treasuries as in investment grade corporate, and about equal amounts in short and intermediate term funds for each. It will total about 19% of my portfolio after I re-balance.
Should I just forget about the investment grade funds? Forget about intermediate funds? Or keep the current split?
Thanks for the replies. I detect some lack of enthusiasm for corporate bonds. At 77 and so far needing only a minimal draw on my portfolio – maybe 1% this year – I suppose I don’t need to take risk and 50% in stocks should be enough. But equally, I can presumably stand a little more risk. Rather than buying into stocks before another draw down, I think I will get rid of the international bonds and the junk bonds, and maybe add some short term TIPS to the intermediate, but keep, say, 2% in each of short and intermediate investment grade corporate.
Interesting question Kathy.
I’m probably going to be the outlier in this conversation, as I have a significant holding in an intermediate “core-plus” total bond fund.
I agree there’s something to be said for the view that if bonds are intended to be the low risk part of the portfolio, to keep them short term and very high quality (usually meaning Treasury) and save your risk taking for stocks. But, there is a middle ground of risk. Just because a bond fund holds corporates does not mean it has the same risk/volatility as a stock fund.
So, I choose to hold the total bond fund. It’s mostly Treasury and high quality corporates, but does have the latitude to hold up to 20% in high yield or foreign bonds. To me this is a little more juice for a little more risk, still far less of both than stocks. (Edit: and a little more diversification)
This higher risk is partially offset by the fact that my other big “bond” holding is a stable value fund in a 401k, which has yield comparable to a short term bond fund but arguably even less risk.
The above are nearly tied for largest holding; then I also have some in a US Aggregate Bond Index fund.
Currently all of my bonds are in Traditional IRA : Total Bond Fund VBTLX 14%, Short Term Treasury VGSH 9%. I agree with Jonathan’s thinking of taking risks on the equity side and using bonds for stability during down markets. I prefer treasuries only. I want to move from VBTLX to a mix of Short and Intermediate Treasury ETFs, but am still waiting for VBTLX to recover from 2021-2022 loss. Am I thinking about this correctly in waiting?
BND (VBTLX’s ETF share class) & VGIT (intermediate Treasury ETF) have behaved similarly over the past 5 years, so I would not hesitate to exchange into VGIT. The argument for exchanging into VGSH is not as strong since VGSH isn’t as volatile, but I would probably just take the plunge.
I have my bond portfolio split 1/3 each, intermediate, short term tips, and total bond (this is where I would have some exposure to corporate bond, but I have no idea as to what percentage this exposure is)
For my bond allocation I have almost all Treasurys, split between nominal and TIPS and intermediate and short term. Vanguard ETFs or their equivalent mutual funds to consider adding would be VTIP, VGIT & VGSH.
Thanks. So you would recommend getting rid of the investment grade corporate bonds (VFICX and VFSTX)? I’m happy with mutual funds, I haven’t explored ETFs.
Yes, I think Treasurys are safer.
Agreed. What works for me is a simple safety/risk split: For bond funds, just Treasurys (short- or intermediate-term, and short-term TIPS) for safety. Investing in other companies (bonds or stocks) is riskier, so if I’m going to take that risk, I might as well invest in stock mutual funds for higher expected return, not corporate bond funds. (All index funds, all at Vanguard.)
“Investing in other companies (bonds or stocks) is riskier, so if I’m going to take that risk, I might as well invest in stock mutual funds”
The volatility of high quality corporate bond funds or the US aggregate bond index is nothing like that of stock mutual funds.
Yep, I know corporate bonds are less volatile than stocks. My comments about a simple safety/risk split come from the perspective of “If you’ve won the game, stop playing.” I retired in 2021 with enough guaranteed income to need less than a 3% withdrawal rate from my IRA. My priority in retirement is simplicity and security. For me, including corporate bond funds would introduce unnecessary complexity.