UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next
Author: rkmacdonald Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75335  
Subject: Re: Bonds Date: 4/18/2004 3:48 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 3
GollumLives wrote"
At what point do you add bonds, savings accounts and the like to retirement investing and what do you buy? According to the retirement advice posted on the fool site stocks and possibly index funds are the most important thing for long term retirement investing. So that is just fine for while you are saving. At some point though you will want to have some protection against a downturn in the market when you are no longer earning an income. Do you put your money in a savings account, buy bonds, a bond fund, T bills or what?

Before you retire, volatility doesn't hurt you (except psychologically, but that's another discussion). Before retirement the goal is to maximize growth which implies a high percentage of equities and the attendant high volatility. In fact, many people invest nearly 100% in diversified equities prior to retirement, which offers the highest historical total return of all.

Then at about five years prior to retirement, most people start adding bonds to their portfolios to achieve an equity/bond ratio that suits their own personal tolerance for risk. Historical data suggests that a 75/25 equity/bond ratio will support the highest long term safe withdrawal rate (around 4%). However, the volatility of a 75/25 mix is substantial, so when I retired, I decided to use a 60/40 equity/bond mix which gives a lot less volatility and a slightly lower safe withdrawal rate.

During retirement, the portfolio should be rebalanced at least annually back to your chosen equity bond mix to assure your continued chosen withdrawal rate.

You also asked about what types of bonds to add. Well, most studies are based on a conservative bond porfolio that includes both treasuries and short term corporates. Of course, you can always add a little more potential income and a little more risk by using longer term bonds.

I recommend you read the Retire Early Home Page at

http://www.RetireEarlyHomePage.com .

You'll find all sorts of great studies and ideas for portfolio asset allocation in retirement.

Russ
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (33) | Ignore Thread Prev | Next

Announcements

The Retire Early Home Page
Discussion on accelerating retirement day.
Post of the Day:
Value Hounds

Medallion Financial: TAXI!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement