Not Investment Advice

[dscher]

I know, but when you put the S&P chart over the one with treasuries in it, somehow they mirror the S&P 500 chart, ESPECIALLY in the downturns! IDK, how they managed that! There's no apparent diversity.

Correct. Treasuries and stocks have been correlating heavily since the 2022 downturn. As they say, one of them is lying.

That correlation won't last if and when any financial instability/ big recession hits the markets again. JMO.

 

[Devilmaycare]

I was looking into them, there's two main types, actual buildings and land based ones, and then mortgage ones that do mostly mortgages backed securities. So there's scariness in both types. The mortgage ones running double digits right now. There's one I looked at with Vanguard that does a lot of houses versus commercial. I am thinking long term I want ETFs that are stocks, bonds, and real estate. Thinking I will buy when any of these sectors are undervalued, to kinda diversify and rebalance over time. I opened a Roth IRA, and when I start working again, I may just us that to invest going forward. Gotta get some tax free appreciation of my investing funds!

Just be care is all I'm saying. REITs are the type of thing that I go in and out of depending on how the real estate market is looking and not one that I look to hold long term. Right now I'm out since I think that that market segment is due for a correction.

 

[elindholm]

Be really careful with REITs right now. That's an asset class that really scares me with what's going on in commercial real estate.

They were hit hard in 2022 and haven't gotten swept up in the broader recovery, so to my eye they are still depressed. But I agree, keep a careful eye on them. I have a mutual fund (RRRAX) and a few individual stocks, one of which, OHI (medical properties) is doing decently.

 

[Yuma]

Just be care is all I'm saying. REITs are the type of thing that I go in and out of depending on how the real estate market is looking and not one that I look to hold long term. Right now I'm out since I think that that market segment is due for a correction.

They keep saying commercial is going to melt down, but it's hanging in there. Houses should get cheaper. You are right, it's probably overvalued at the moment.

 

[Folster]

I know, but when you put the S&P chart over the one with treasuries in it, somehow they mirror the S&P 500 chart, ESPECIALLY in the downturns! IDK, how they managed that! There's no apparent diversity.

Post a screen shot of the investment funds available in your 401K. Please be sure to remove any personal or balance info. I'd like to take a look.

 

[Yuma]

Post a screen shot of the investment funds available in your 401K. Please be sure to remove any personal or balance info. I'd like to take a look.

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[Yuma]

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[Yuma]

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[Yuma]

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[Yuma]

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[GoldGloveschmidt]

You should be using the Vanguard 2025 fund if you want a fairly conservative 60/40 portfolio. The 2030 fund would be the next step at 63/35. These funds will automatically make your account lean more conservative as you approach retirement.

Not to be rude, but with your level of knowledge of the market and returns, you will probably be better off in this type of "set it and forget it" fund rather than trying to create your own tactical asset allocation.

The .06 expense ratio is as cheap and efficient as it gets.

 

[Folster]

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So the NT Collective Aggregate Bond Index Fund is essentially the very popular bond ETF AGG from iShares/BlackRock. They both track the Bloomberg Aggregate Bond Index. It is to bonds what the S&P 500 is to stocks. It provides exposure to US treasuries 41%, corporate bonds 32%, and mortgage-backed securities 27%.

It's 30 day SEC yield is 4.18% which means over the last 30 days investors have received an annualized yield of 4.18%, which isn't bad. Also it has a weighted average maturity of 8.65 years with an average duration of 6.25 years so it stands to do pretty good if rates do fall.

 

[Yuma]

Those mortgage backed securities give you a bit of real estate exposure.

 

[dscher]

You should be using the Vanguard 2025 fund if you want a fairly conservative 60/40 portfolio. The 2030 fund would be the next step at 63/35. These funds will automatically make your account lean more conservative as you approach retirement.

Not to be rude, but with your level of knowledge of the market and returns, you will probably be better off in this type of "set it and forget it" fund rather than trying to create your own tactical asset allocation.

The .06 expense ratio is as cheap and efficient as it gets.

Agreed.

 

[Yuma]

You should be using the Vanguard 2025 fund if you want a fairly conservative 60/40 portfolio. The 2030 fund would be the next step at 63/35. These funds will automatically make your account lean more conservative as you approach retirement.

Not to be rude, but with your level of knowledge of the market and returns, you will probably be better off in this type of "set it and forget it" fund rather than trying to create your own tactical asset allocation.

The .06 expense ratio is as cheap and efficient as it gets.

I was actually looking at the 2035 fund, which let me compare it's chart to the S&P 500, and even with bonds in the mix, it tracked the S&P 500 almost exactly on the lows, and was not hitting the highs of the S&P 500. So looking at it just logically, where was my safety from the down markets? There didn't appear to be any.

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[Folster]

I was actually looking at the 2035 fund, which let me compare it's chart to the S&P 500, and even with bonds in the mix, it tracked the S&P 500 almost exactly on the lows, and was not hitting the highs of the S&P 500. So looking at it just logically, where was my safety from the down markets? There didn't appear to be any.

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A 10 year lookback is relatively short and you happen to be catching a prolonged period of US stock outperformance. History suggests that will come to an end. The Vanguard 2035 fund has a whopping 28% international exposure while the S&P 500 has none.

I've found it really difficult to keep international exposure over the past decade as you can see below, but eventually the tide will have to turn. Every globally diversified portfolio has been getting spanked by the S&P 500 since the GFC.

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[GoldGloveschmidt]

I was actually looking at the 2035 fund, which let me compare it's chart to the S&P 500, and even with bonds in the mix, it tracked the S&P 500 almost exactly on the lows, and was not hitting the highs of the S&P 500. So looking at it just logically, where was my safety from the down markets? There didn't appear to be any.

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The target date fund has significantly less volatility as shown by the chart there.

If you can handle the ups and downs of the S&P500, and you have a long term time horizon, by all means, stay invested there.

Bonds have not been a great diversifier over the past decade. 2022 was the worst year ever for bonds, with the AGG down 12%. The S&P500 was down 18% There was nowhere to hide last year.

But the long term picture on bonds hasn't changed. They are a non-correlated asset. Just because stocks and bonds have moved similarly in recent history doesn't mean they will continue to do so.

In 2009, the S&P500 was down 38% while Bonds were up 5%. If you think a recession is on the horizon, which most do (I personally am looking at 2025), then you want to consider adding some Bonds to your portfolio. Even more-so now that you are earning 5% interest with the potential for capital appreciation when rates fall.

having non correlated assets in your portfolio is even more crucial in retirement. If you are relying on portfolio withdrawals for income, you never want to put yourself in a situation where you are forced to sell stocks when they are having a down year. Adding the bonds to your portfolio will give you a place to draw income from while you wait out down-cycles in the stock market.

 

[elindholm]

Bonds have not been a great diversifier over the past decade. 2022 was the worst year ever for bonds, with the AGG down 12%. The S&P500 was down 18% There was nowhere to hide last year.

And there's the rub. It will take the bond market longer to make up for -12% than it will take the stock market to make up for -18%. I'm diversified because of my age, but I don't think of bonds, as a broad group, as providing safety anymore. As I try to shift slightly more conservative, the one thing I'm not doing is putting more money in bond funds. Even direct ownership of corporate bonds can be risky -- my father-in-law lost a bunch on GM when they defaulted and the bonds became worthless.

I like Series I treasury bonds as a hiding place. You can't move big sums of money into them, but it's a start. Otherwise, I'm leaning toward (other) cash instruments.

Do you have a bond mutual fund you trust?

 

[Folster]

A look under the hood of the Vanguard 2035 fund shows a pretty standard Boglehead 4 fund portfolio.

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It would not be hard to mimic and tweak with the NT funds you have in your 401K. But the issue with a custom portfolio is the likelihood that you would alter it based on short term volatility or not rebalance and over time you would under perform the simple target date fund.

But you could construct something similar with the NT S&P 500 fund, extended market fund, total international stock market fund, and the aggregate bond index. You'd only be missing a bit of international bond exposure. Not a big deal.

I'm quite fond of the TRowe price growth fund as well. I'd likely have some exposure to that, but overall I agree with @GoldGloveschmidt. Simpler is better especially with your 401K. If you had a smaller Roth account separate from your 401K, maybe you could dink around, provided you have the right temperament and trust yourself during periods volatility or when perma bears like @dscher burrow into your mind.

 

[Yuma]

A look under the hood of the Vanguard 2035 fund shows a pretty standard Boglehead 4 fund portfolio.

You must be registered for see images attach

It would not be hard to mimic and tweak with the NT funds you have in your 401K. But the issue with a custom portfolio is the likelihood that you would alter it based on short term volatility or not rebalance and over time you would under perform the simple target date fund.

But you could construct something similar with the NT S&P 500 fund, extended market fund, total international stock market fund, and the aggregate bond index. You'd only be missing a bit of international bond exposure. Not a big deal.

I'm quite fond of the TRowe price growth fund as well. I'd likely have some exposure to that, but overall I agree with @GoldGloveschmidt. Simpler is better especially with your 401K. If you had a smaller Roth account separate from your 401K, maybe you could dink around, provided you have the right temperament and trust yourself during periods volatility or when perma bears like @dscher burrow into your mind.

I tend to think like Buffet. I look for downturns in sectors and invest when everyone is fleeing. I look for value. That's why I am looking for three categories to invest in. However, I am limited by the funds in my 401K. I have a very small Roth. Going forward I may put all my funds into that because it's a Vanguard account, so I have way more options.

I just see my S&P fund is up 20% this year in my 401K. No one can expect that to continue. So I was looking to move some funds from that since it's red hot, and was looking for a more value option within my choices. I may go with the bond fund for more diversification.

 

[GoldGloveschmidt]

And there's the rub. It will take the bond market longer to make up for -12% than it will take the stock market to make up for -18%. I'm diversified because of my age, but I don't think of bonds, as a broad group, as providing safety anymore. As I try to shift slightly more conservative, the one thing I'm not doing is putting more money in bond funds. Even direct ownership of corporate bonds can be risky -- my father-in-law lost a bunch on GM when they defaulted and the bonds became worthless.

I like Series I treasury bonds as a hiding place. You can't move big sums of money into them, but it's a start. Otherwise, I'm leaning toward (other) cash instruments.

Do you have a bond mutual fund you trust?

I use mostly Pimco and Fidelity bond funds.

Income focus: PIMIX, FSRIX
Total Bond: PTTRX , FEPIX

These are institutional share classes that are purchased within a managed account. You could also check into the A or C shares.

 

[dscher]

perma bears like @dscher burrow into your mind.

We needed a forum bear. I simply provide some balance.

 

[dscher]

Regardless, all the points being brought up are solid. Bonds are your hedge/risk management if your timeframe is longer and have less risk appetite. You'll make less in an up market and lose less in a down market. The give and take of any market. Capital preservation always comes first IMO.

 

[Folster]

I use mostly Pimco and Fidelity bond funds.

Income focus: PIMIX, FSRIX
Total Bond: PTTRX , FEPIX

These are institutional share classes that are purchased within a managed account. You could also check into the A or C shares.

This explanation is not for you Goldy but for the larger board.

I'd steer clear of C shares and only entertain an A share if it was load-waived. A's and C's are advisor share class funds that have additional fees built in that pay your advisor who recommends them to you. A lot of times you can't even purchase them on a self-directed trading platform. They are relics of a previous era of investing and not relevant to a self-directed investor. Most mutual funds will give self-directed clients access to either their institutional class, investor class, or a load-waived A share.

 

[elindholm]

I use mostly Pimco and Fidelity bond funds.

Income focus: PIMIX, FSRIX
Total Bond: PTTRX , FEPIX

Thanks for these recommendations. I had FTBFX, whose performance is nearly identical to FEPIX, and decided that I couldn't justify keeping it. Both of those funds have averaged 2.3% over the last ten years, which means they've lost ground to inflation. FSRIX could be a good compromise for me. I have some similar ones that are a smidge more aggressive.

My father-in-law had a Pimco fund, and its performance was decidedly lackluster, so I lost interest in that firm, but I could look again.

I appreciate the input!