Start gradually converting your equity to bonds is the standard advice on that timeframe. If you're dreading equity drawdowns, that's what fixed income is for.
To point, the economic uncertainties around geopolitics, AI, and war, plus irresponsible debt spending by governments and the prospect of QE (and higher inflation), is pushing long term rates steadily higher. There’s a reasonable chance that 30y treasuries are nearing 6% by the end of next year. Remember that rates and bond prices are inversely related. Anyone who holds bonds in this market will likely lose money. Holding to maturity won’t help much either because if inflation continues to rise, as is a major concern, most or all of that 5% yield gets eaten.
Yes, you lose money (or more precisely you lose opportunity) but you gain certainty. Which is what you want for retirement
That’s pretty much the definition of risk premium.
If you have more than enough saved to meet your basic needs, it does (IMO) make sense to give up some total income for lower variance.
Stocks generally rise with inflation, whereas bonds continue paying out the same nominal amount, which buys you less over time.
As a retiree I'm 50/45/5 in stocks/bonds/cash, having opted for a conservative portfolio. The stocks are the only reason I haven't lost buying power. But the bonds have performed so poorly that I've barely kept up with inflation despite the amazing bull run in stocks.
Currently you get 2.75% yield in real terms for the 30 year maturity: https://www.cnbc.com/quotes/US30YTIP
Are you referring to Anarkulova et al? Might be worth mentioning that the fixed income part is replaced with international equity, not more domestic equity.
Another good option for something that can give good current income is REIT stocks. The management fees on the funds that specialize in these tend to be high for my tastes (I like passively managed funds with management fees that could be rounding errors) so when I’ve had money in REITs, I’ve typically looked at the top stocks in the REIT funds and just bought those directly with dividend reinvestment. Note that because of the nature of REIT dividends and taxes, it’s better to use tax-advantaged accounts to buy these than to put money in a regular retail account towards them.²
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1. Back during the first dotcom goldrush when tech stocks were especially volatile (1999–2001 in particular), people who bought dotcom mutual funds in taxable accounts often ended up with a big distribution from the fund and a drop in share price greater than that distribution so that they would end up not only losing money on their investment but they also had a tax bill for their troubles since distributions will count as realized capital gains.
2. Important to note that I’m not a financial advisor and my advice is probably garbage.
Also, it should be noted, just because it's the optimal to have the most $'s that shouldn't be the goal. The goal should be to survive your retirement with "enough".
And it should also be mentioned, most people can't stomach holding 100% equities, for a very good reason. When the 40-60% market crash happens, people get emotional and make emotional decisions. Sure there are the lucky few that can hold out, but most can't. Are you going to be one of the few lucky ones? If you haven't yet been through it once(last one in the USA was 2008/9), how do you know for sure?
People have forgotten this but equities are an infinite duration asset that are prone to periodic, significant, often violent crashes.
(Edit: often at a time when everyone is absolutely convinced they're the best asset class...)
You can keep some equity exposure but you don't want 1929 or 2008 to happen the day after you retire when you might live for another 30 years
That's assuming you sell the bonds before their end.
Bounds are not as volatile, so even if you lose some money from inflation, you are less likely to lose a lot of money, money you need to live, from the whims of the market. You want to protect your capital, yields don't matter as much if you near the end of your life.
If you are younger, and you make reasonable investments and not gambles, you can expect that your value will go up (more so than with bounds) within a decade or two, and because you have income, you don't need that money and you can wait for the market to recover before selling.
It looks excellent for your needs, and have an incredibly low expensive ratio of 8bps(!). Currently, it is 75% stocks, and 25% bonds. Don't worry about a bubble in the stock market.
EDIT (after reading many, many more negative comments below):
The problem with discussing your investments online, there are a million negative replies. No one ever says: "Yeah, looks pretty good. Leave it alone." I'm here to be that guy.
I really appreciate when someone chooses to be that guy.
The market of a good leader is a lack of chaos. We are seeing the effects of a chaotic mind untethered from an accurate view of reality. Buckle up
So, the optimists all swim in the cash while your contrary position fails to keep pace with the bull market; and then the bear market hits and you all get obliterated equally.
Bonds are about steady cash flow, not about total return. "stable" dividend stocks are almost never really stable when the financial world crashes.
> "stable" dividend stocks are almost never really stable when the financial world crashes.
> As others have pointed out, bonds are barely (or not) keeping up with inflation.
For looking at corporate bond rates, it is useful to consider the Bloomberg US Aggregate Bond Index (aka "the Agg"). It has a weighted average maturity of about 8 years (intermediate-term), currently has a yield-to-maturity of about 4.75%.
Everytime I see a debate of stocks vs bonds on the Internet, someone pops into the convo to remind everyone about "stable" dividend stocks. Honestly, for sophisticated investors, I just to don't see this strategy frequently deployed. It seems more like talking heads on the Internet. Has anyone done backtesting on performance of high div stocks vs some combination of S&P 500 and investment grade corp bonds? I would expect the latter to greatly outperform.
So I disagree that "If you're dreading equity drawdowns, that's what fixed income is for" is absolutely terrible advice.
If you want to get intuition for why this works, this is a really fun and interesting video: https://youtu.be/TQuxVz52w2w
https://investor.vanguard.com/investment-products/mutual-fun...
Normally with these things when absolutely everyone is crowded on one side of the boat, you want to be on the other side
If you haven't lived through a market panic and crash(last one in the US was 2008/2009), then chances are you shouldn't count yourself as being able to do it.
Also, their 100% equity time frames are measured in many lifetimes, not in a single lifetime.
If the goal is to have the biggest $ balance, then sure 100% equities for the win, but if the goal is to survive your retirement with little worry, 100% equities is a terrible idea.
Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation.
> Bonds provide stable cash flow. Equities provide growth/return. Use both in the appropriate amounts for your situation.
Technically when bonds "go to $0", you actually get priority over any corporate assets vs stock ownership, but if the bond went to $0, there is likely not a lot of assets left either. So you can't expect to get saved completely from whatever asset sale happens.
> Technically when bonds "go to $0"
Exactly.