No, largely because I don’t see much of an alternative other than cash, which we also already have a highish allocation to, and I wouldn’t want to overdo this either.
However, I am considering two things re bonds:
(1) Embracing a larger opportunity set in bonds. Our largest bond holding is a “core plus” fund, which is like any other diversified intermediate term fund except that it has a limited ability to invest in high yield and foreign bonds if the mangers see fit. I like this in the base case, but I think especially now when the bond market is in flux and the better opportunities may lie outside the usual index.
(2) Hedging against neighbor risk. As Nick’s question suggests, bond funds may be subject to shareholders losing faith and selling out of their funds forcing redemptions. I have no interest in dealing with individual bonds, but – Fidelity offers a separately managed account in which they build a portfolio of individual bonds. I may consider this for a portion of our bond holdings.
I participate in financial planning/retirement FB community and one ongoing theme is questioning bonds in a portfolio as opposed to zero questioning of the stock market. Cash vs bonds-do I need any bonds-I hate bonds-the performance is poor-these are just some of the themes. I am a strong proponent of bonds place in a retirement portfolio and believe, at least to some extent, a lack of understanding underpins this ongoing questioning. I actually have even more faith in the bond market now as it seemed to have been a sanity check factor recently in questionable economic policy leading to a policy adjustment. The bond market dwarfs the stock market and, at least to some extent, underpins it’s performance. We own both a few bond ETFs and a few individual bonds (TIPS) which are doing just fine and I expect that to continue. We actually sold a bit of our bond funds as part of our rebalancing strategy in preparation to buy some stock ETFs.
No, because we own bonds rather than bond funds. This eliminates the inherent interest rate risk to valuation that bond funds incur at the time of maturity or needed withdrawal. Individual bonds increase default risk which can be reduced via diversification or owning treasuries. To us, the interest rate risk with bond funds exceeds the default risk and increased complexity of owning individual bonds.
In a word, no. But bigger shifts in U.S. bond prices/yields could be ahead. As we go through this, remember Adam Grossman’s wise words: It’s best to steer your investments towards the middle of the road, avoiding extremes. For me that means no rash steps like dumping all bonds to cash. But it also means driving the bond part of the portfolio with eyes open and on the road.
Investors should be paid a reasonable risk premium for each piece in the bond part of their portfolio too, just as they expect a risk premium for the stock part. When that risk premium vanishes, it’s time to review your bond allocation. Do you need to change the average duration of the bonds or funds you hold because the duration premium is gone? Should you be boosting the inflation indexed part and trimming the nominal part because inflation rates are rising?
Bonds have default risk, duration risk, and income risk; nominal bonds also have inflation risk. If there’s no premium for taking on those risks with a particular bond or bond fund, then you can expect a loss when one of those risks appears if you bought at a price with too little margin for surprises.
No…because I no longer hold any bonds or bond funds.
When I decided to retire in early 2023, anticipating a retirement date of January 5, 2024, I liquidated my bond holdings and purchased Deferred Fixed Annuities, using Roth Dollars.
When I did retire in 2024, I “turned on” two of my four annuities, after first using up the funds from my final paycheck and cashed out PTO.
Beginning in June 2024, we began receiving annuity income and our Social Security. (I waited until 70 to file for SS Benefits, and retired at age 73 and 4 months.) The rest of our portfolio was invested 100% in Equities…VTI and VXUS, specifically, and still is.
In January 2025, we “turned on” the remaining annuities. Our income today consists of Social Security (w/ COLA) and Annuity Income, which is Income Tax Free.
While no one is happy with the market volatility these days, because our income is 100% Guaranteed, it doesn’t affect our income. In addition, should the recovery take longer than anticipated, and should we need additional funds, we have 15 months of retirement expenses in VFMXX.
I believe…and it is only my opinion…that far too many retirees hold Ken Fisher’s mantra, “I Hate Annuities” to heart…to their detriment.
Three of my four annuity checks were deposited this week, and the fourth comes next week, on the 15th. They couldn’t care less what the market is doing…who is manipulating it…which politicians are doing their standard, corrupt, insider trading…or who is criticizing the President, because they think they are smarter than him and all his advisors.
No. I do own some bonds outright. But I did get discouraged with bond ETFs a few years ago. When high yield savings accounts began paying I switched most of my bond ETFs to cash. My spouse does have a couple of Vanguard Target-Date funds in her portfolio. She anticipates no changes. The decline of 2022 proved my thesis that I wasn’t being adequately compensated for what little risk I was taking including TIPS funds. My remaining bond funds represent 3.85% of the portfolio.
I have not lost faith as they will remain the ballast in my portfolio to lessen the sharp decline of equities. I would substitute a better choice if there was one to be found. One year, 2022, does not change the long term outlook for asset allocations that includes bonds or bond funds.
I haven’t (yet) – neither in 2022 nor now. But I do follow a few rules for Bonds even though they are probably not very appealing to most Bond investors.
First, I use Bond primarily for safety of principal, and the “yield” is not much of a factor. This is sharply different from many investors who also care about finding a right balance between those two. “Yield” comes only at the cost of sacrificing “safety” by a small bit. Since “yield” isn’t a factor for me, I avoid all three major risk factors with Bonds:
Credit Risk: I only use US Treasury.
Unexpected Inflation Risk: I use TIPS for the most part. Inflation unprotected holdings are only short-term.
Interest Rate Risk: I favor individual bonds (or target maturity bonds) holding to maturity. For funds, I plan to continue holding on to short-term ones until the interest rate rises to a very high level.
Liquidity Risk: I no longer use super high-grade corporate bonds because of the lack of liquidity. Thankfully, Treasury bonds have turned out to be reasonably liquid even at smaller quantities.
Still, when I’m about to lose faith on the Bond market, I simply count on my stock investments to eventually rescue me from any future disappointments.
I have been concerned since 2022. I wasn’t aware that inflation would take such a toll on my bonds. In January 2020 I invested $150K of inherited money into Vanguard Intermediate Bond Fund as I thought I would get a better return then with the bank. I hand plans to spend some of the money on new vehicles in the future, so I have taken out 80k over the past 5 years. Last year I finally bit the bullet and sold it at a capital loss of $21K, and bought a short term bond fund to minimize my exposure to inflation risk as we’re planning to add a porch to our retirement house when we turn 70 in three years.
Overall the fund returned $2,600 in those 5 years. So I guess the answer is yeah, sorta.
On the other hand the YTD return on my bond funds is + 2-3%, vs the Morningstar US Market Index is down 15.42%.
BTW I heard a theory that the reason that the tariffs were partial reversed is because foreign governments were dumping US treasuries as they were losing faith in the US government so treasury rates were rising. Guess that’s what happens when you fly by the seat of your pants on policy, rather than having a well thought out strategy.
Last year I finally bit the bullet and sold it at a capital loss of $21K
According to Morningstar if you had $100,000 of VBILX on Jan 31, 2020 and you reinvest dividends, today you would have $99,808. A loss of 0.19% (-$192).
Maybe Im using the wrong term with capital loss? I have about broken even overall but the cost of the shares at purchase vs sale resulted in a loss of 21K.
lost faith in our govt that the constitution is not being respected
our president obviously missed those courses
I’m beginning to lose faith in our ability to keep this site free from gratuitous political commentary, from whatever side.
What’s it been, a day since Jonathan had to close a thread to new comments?
No, largely because I don’t see much of an alternative other than cash, which we also already have a highish allocation to, and I wouldn’t want to overdo this either.
However, I am considering two things re bonds:
(1) Embracing a larger opportunity set in bonds. Our largest bond holding is a “core plus” fund, which is like any other diversified intermediate term fund except that it has a limited ability to invest in high yield and foreign bonds if the mangers see fit. I like this in the base case, but I think especially now when the bond market is in flux and the better opportunities may lie outside the usual index.
(2) Hedging against neighbor risk. As Nick’s question suggests, bond funds may be subject to shareholders losing faith and selling out of their funds forcing redemptions. I have no interest in dealing with individual bonds, but – Fidelity offers a separately managed account in which they build a portfolio of individual bonds. I may consider this for a portion of our bond holdings.
I participate in financial planning/retirement FB community and one ongoing theme is questioning bonds in a portfolio as opposed to zero questioning of the stock market. Cash vs bonds-do I need any bonds-I hate bonds-the performance is poor-these are just some of the themes. I am a strong proponent of bonds place in a retirement portfolio and believe, at least to some extent, a lack of understanding underpins this ongoing questioning. I actually have even more faith in the bond market now as it seemed to have been a sanity check factor recently in questionable economic policy leading to a policy adjustment. The bond market dwarfs the stock market and, at least to some extent, underpins it’s performance. We own both a few bond ETFs and a few individual bonds (TIPS) which are doing just fine and I expect that to continue. We actually sold a bit of our bond funds as part of our rebalancing strategy in preparation to buy some stock ETFs.
No, because we own bonds rather than bond funds. This eliminates the inherent interest rate risk to valuation that bond funds incur at the time of maturity or needed withdrawal. Individual bonds increase default risk which can be reduced via diversification or owning treasuries. To us, the interest rate risk with bond funds exceeds the default risk and increased complexity of owning individual bonds.
In a word, no. But bigger shifts in U.S. bond prices/yields could be ahead. As we go through this, remember Adam Grossman’s wise words: It’s best to steer your investments towards the middle of the road, avoiding extremes. For me that means no rash steps like dumping all bonds to cash. But it also means driving the bond part of the portfolio with eyes open and on the road.
Investors should be paid a reasonable risk premium for each piece in the bond part of their portfolio too, just as they expect a risk premium for the stock part. When that risk premium vanishes, it’s time to review your bond allocation. Do you need to change the average duration of the bonds or funds you hold because the duration premium is gone? Should you be boosting the inflation indexed part and trimming the nominal part because inflation rates are rising?
Bonds have default risk, duration risk, and income risk; nominal bonds also have inflation risk. If there’s no premium for taking on those risks with a particular bond or bond fund, then you can expect a loss when one of those risks appears if you bought at a price with too little margin for surprises.
There’s a relevant article on tipswatch.com.
No…because I no longer hold any bonds or bond funds.
When I decided to retire in early 2023, anticipating a retirement date of January 5, 2024, I liquidated my bond holdings and purchased Deferred Fixed Annuities, using Roth Dollars.
When I did retire in 2024, I “turned on” two of my four annuities, after first using up the funds from my final paycheck and cashed out PTO.
Beginning in June 2024, we began receiving annuity income and our Social Security. (I waited until 70 to file for SS Benefits, and retired at age 73 and 4 months.) The rest of our portfolio was invested 100% in Equities…VTI and VXUS, specifically, and still is.
In January 2025, we “turned on” the remaining annuities. Our income today consists of Social Security (w/ COLA) and Annuity Income, which is Income Tax Free.
While no one is happy with the market volatility these days, because our income is 100% Guaranteed, it doesn’t affect our income. In addition, should the recovery take longer than anticipated, and should we need additional funds, we have 15 months of retirement expenses in VFMXX.
I believe…and it is only my opinion…that far too many retirees hold Ken Fisher’s mantra, “I Hate Annuities” to heart…to their detriment.
Three of my four annuity checks were deposited this week, and the fourth comes next week, on the 15th. They couldn’t care less what the market is doing…who is manipulating it…which politicians are doing their standard, corrupt, insider trading…or who is criticizing the President, because they think they are smarter than him and all his advisors.
The checks just keep coming.
No. I do own some bonds outright. But I did get discouraged with bond ETFs a few years ago. When high yield savings accounts began paying I switched most of my bond ETFs to cash. My spouse does have a couple of Vanguard Target-Date funds in her portfolio. She anticipates no changes. The decline of 2022 proved my thesis that I wasn’t being adequately compensated for what little risk I was taking including TIPS funds. My remaining bond funds represent 3.85% of the portfolio.
I have not lost faith as they will remain the ballast in my portfolio to lessen the sharp decline of equities. I would substitute a better choice if there was one to be found. One year, 2022, does not change the long term outlook for asset allocations that includes bonds or bond funds.
I haven’t (yet) – neither in 2022 nor now. But I do follow a few rules for Bonds even though they are probably not very appealing to most Bond investors.
First, I use Bond primarily for safety of principal, and the “yield” is not much of a factor. This is sharply different from many investors who also care about finding a right balance between those two. “Yield” comes only at the cost of sacrificing “safety” by a small bit. Since “yield” isn’t a factor for me, I avoid all three major risk factors with Bonds:
Still, when I’m about to lose faith on the Bond market, I simply count on my stock investments to eventually rescue me from any future disappointments.
I have been concerned since 2022. I wasn’t aware that inflation would take such a toll on my bonds. In January 2020 I invested $150K of inherited money into Vanguard Intermediate Bond Fund as I thought I would get a better return then with the bank. I hand plans to spend some of the money on new vehicles in the future, so I have taken out 80k over the past 5 years. Last year I finally bit the bullet and sold it at a capital loss of $21K, and bought a short term bond fund to minimize my exposure to inflation risk as we’re planning to add a porch to our retirement house when we turn 70 in three years.
Overall the fund returned $2,600 in those 5 years. So I guess the answer is yeah, sorta.
On the other hand the YTD return on my bond funds is + 2-3%, vs the Morningstar US Market Index is down 15.42%.
BTW I heard a theory that the reason that the tariffs were partial reversed is because foreign governments were dumping US treasuries as they were losing faith in the US government so treasury rates were rising. Guess that’s what happens when you fly by the seat of your pants on policy, rather than having a well thought out strategy.
According to Morningstar if you had $100,000 of VBILX on Jan 31, 2020 and you reinvest dividends, today you would have $99,808. A loss of 0.19% (-$192).
Plus taxes on interest if in a taxable account
Maybe Im using the wrong term with capital loss? I have about broken even overall but the cost of the shares at purchase vs sale resulted in a loss of 21K.