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Comment by solenoid0937 | Hacker News Reader

This is absolutely terrible advice and is out of touch with modern financial understanding. Bonds feel psychologically safer, but lead to failure more often than total market equity portfolios, even when you account for market crashes.

https://youtu.be/p25PPBgMiEk

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I feel like I should go learn some more. I'm not in a pure index fund, I'm really in VFORX (almost completely, I'm not too original nor sophisticated financially and don't try to pick my own stock picks these days except with my "lunch money" just for fun). Do you think something like VFORX is a bad option? It's actively managed, so the fees will be a little higher than a pure index fund, but it's Vanguard and the fees are still really low. And it has total market components in addition to bonds.

Active management in general is a poor idea. You'll get better risk adjusted returns by investing in total world equities (like VT). Check out Bogleheads to learn the basics. If you want to get more advanced, you can learn about factor investing as well, but VT is enough for the vast majority.

If you want to get intuition for why this works, this is a really fun and interesting video: https://youtu.be/TQuxVz52w2w

For VFOROX, the expense ratio is 0.08% which is pretty low. Also VT is 45% of it. VFOROX looks well balanced to me, with 3:1 equity to bond ratio.

https://investor.vanguard.com/investment-products/mutual-fun...

The boglehead approach has worked fantastically for ~40 years, but now that everyone is doing it, it may no longer be the case going forwards.

Normally with these things when absolutely everyone is crowded on one side of the boat, you want to be on the other side

What exactly is the opposite side? Is it actively managing a portfolio? Because most people don't have the time to do that.

I always thought the psychological safety was exactly part of the point, since 100% equity portfolios do better in theory than practice, because people are more likely to panic sell.

I agree with everything in the video you linked (which is not surprising, given it's Ben Felix). That includes the parts about equities being less risky than bonds in very important ways, but also the parts about behavioral loss tolerance and risk capacity, and how they can indicate higher bond allocation.

So I disagree that "If you're dreading equity drawdowns, that's what fixed income is for" is absolutely terrible advice.

What you said is not what the linked video says, so at best this is terrible advice piling onto terrible advice.

It is precisely what the video says. Ben has discussed this multiple times as well, not just in this video. If you have better behavioral tolerance for volatility (as in you're not the type to panic sell), total market equities will outperform and lead to less failure in retirement.

While partially true, that "If you have better behavioral tolerance for volatility" is HUGE. Most people can not do this. Once they see their net worth go from $x to $x/2 or worse, they panic sell. People are emotional beings and it's very very hard to not let your emotions dictate what's going on.

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.

This is sound advice. I want to add some nuance about "bonds": Consider some broad categories: (1) regular gov't bonds, (2) inflation protected gov't bonds, (3) investment grade corporate bonds, and (4) high yield corporate bonds. In category (4), it is possible to get both cash flow and capital appreciation. It is the bond-equivalent of "stock picking".

Indeed. Category #4 "high yield corporate bonds" are also known as "Junk bonds" because they kind of suck at the stable cashflow part, since they tend to go to $0 sometimes, much like stocks.

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.

Credit events (late payments, bankruptcy, etc.) for junk bonds are much less rare than people think. If there is bankruptcy, usually it is Chapter 11 which allows for re-org.

    > Technically when bonds "go to $0"

Extremely unlikely, unless there is massive accounting fraud. Recovery rates are on average about 45-55% (since 1987 according to research by S&P).

> Recovery rates are on average about 45-55% (since 1987 according to research by S&P).

Exactly.

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