How Bonds could be Hurting Your Retirement

Conventional wisdom and popular personal financial advice suggest that portfolios should contain at least some bonds and that asset allocations should shift increasingly into bonds as investors move toward retirement, but new research suggests that this thinking is due for an update.
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[BenyaminNoori]

I love it when research suggests the best thing to do is the easiest.

[notKhalid]

as ben graham once stated "volatility is not risk", it's the psychology of the investor during times that's the risk

[thynnus]

I really like these short videos that summarize the key points of Rational Reminder episodes. They are a great way to review the subject matter and share with others to introduce the topics.

[fsmoura]

7:23 _"Now, before you run off and dump your bonds—"_

F—k!! I knew I should have watched til the end first! ( oДo)

[richardgilm]

Your ability to find and consume scientific research, to extract the core message and to communicate conclusions effectively and accurately is impressive. I am a huge fan of this channel! Much value added in 10min videos 👏

[benjaminscello]

I know a lot of people say to never look at your portfolio on a daily basis but personally I think it trains your resolve. As the portfolio grows you slowly get introduced to bigger daily swings and become accustomed to thousands of dollars coming/going daily...and you start to believe it's all imaginary until you retire.

[ricardo]

Dude, this work you are doing here is changing so many lives! Thank you Ben!

[mangoman]

Great content but a question rarely asked is "do we need to tolerate volatility? Do we need the optimum outcome?" for some they may have far more than they could ever spend and dont need to have anything in equities as they could live the rest of their life in luxury being 100% bonds and still have millions left over. Others however will need to optimize their balance as much as possible to eke out even a modest retirement. Our financial situations are all very different and we not only need to understand the risks of asset allocation (amongst others) but whether or not those risks even apply to our situation.

[webtel]

thank you, switching all my VBAL to VEQT (all $2000 of them)

[drdissonance-vv]

This is fascinating. I have a very high risk tolerance but keep 20% bonds because of the research showing this is approximately when risk vs. return becomes linear. It helps psychologically too but I never thought of risk as presented in the video. Thanks as always Ben!

[simong]

Given that the persistence of the equity risk premium is unknown, I think the best way to hedge against possible future scenarios is to hold at least some bonds, maybe 5-10%. Holding 100% stocks and no bonds feels like you would be putting too much trust that these studies have no flaws and the findings will persist in the future. I'd rather not take that risk. And the plus point of some bonds is that if you are a disciplined investor, you will have some liquidity to rebalance and buy more equities when they drop (which they will at some point) which should i theory help your returns... although interesting that the study didn't find this type of rebalancing would improve the outcome.

[FuriousWeasel-]

I think this leaves out some important considerations. Volatility is fine in your earning years, but sequence of returns risk is real. Doesn't matter your risk tolerance when you retire into a recession and your portfolio collapses 50%. So it makes sense to reduce equity exposure as you near retirement, whether that is cash, bonds, or gold. Second, I don't think it is realistic to expect a US citizen to invest 65% internationally, that seems extremely high and overweights global market cap, and introduces currency conversion risk, foreign taxation, and geopolitical risks, none of which are compensated by excess returns.

[AndrewHenry]

As an lnvesting enthusiast, I often wonder how top level investors are able to become millionaires off investing. . I’ve been sitting on over $545K equity from a home sale and I’m not sure where to go from here, is it a good time to buy into stocks or do I wait for another opportunity?

[skzion]

Superbly done. The longer discussion in your podcast was nicely compressed.

You might have puzzled American investors, who should NOT have 35% US equities, but maybe 65% US and 35% ex-US.

[HsshshUehssi]

Thanks for all the knowledge shared, Ben!

[Martin_Edmondson]

Thanks Ben. I am 100% stocks and am going to stick this way until I am at least 65.. maybe longer if I live that long.
If you can stomach the ride, it seems to make sense for me at least.

[james]

A lot of people on forums are conflating the behavioral side with the academic side. First we need to continue to research what’s optimal based on data. Then we can apply a behavioral filter.
But as a defensive reflex, many are putting the behavioral cart before the horse.

[josephbangs]

A 50% draw down of a portfolio that has 8x over 30 years is a lot easy to live with then a 50% draw down of a portfolio that has only 3x over same time due to having to much in fixed income, bonds, dividend funds. Build the biggest pile to weather the storms

[kygo]

I'm so glad you add the "psychological" parts onto your videos... as investing is so much more than just numbers. Of course it's interesting learning that the expected returns of 100% stocks in 20 years time is going to be whatever % higher vs holding some bonds... but even knowing this, I won't change how I invest, it's not worth the cost of the stress I would have every time the market takes a dip.

I lean much more towards a low risk portfolio, I understand that will probably get worse financial returns, but I don't care... I like sleeping at night not worrying what the stock market is doing. That to me is worth more than the few % a year I'm leaving on the table.

[stevekehoe]

Wow, such intellectual honesty from an apostle of Modern Portfolio Theory.
Fabulous take on the Vanguard research.