- quote -

9 funds/sectors is well diversified. an 80-20 mix with an expectation
of a 7.5% return sounds reasonable to me.

"Turtle" <mhauser-rite-on[at]arcor.de> wrote
- quote -

He also thinks a small selection of microcap stocks has the
same risk as a microcap mutual fund with a much larger
selection of microcap stocks.

Different people have different risk tolerances, or are less
read on the effect of bonds on a portfolio.

I recommend letting Jose speak for himself, anyway, and not
dragging in comments from other fora here, especially
unmoderated ones, where every crackpot posts, driving away
the sane to rebut them, and the tenor is very different as a
result.

- quote -

One cannot tell whether this is a book on investing via
Germany or what all. I'd say 95% of the comments here are
directed to those based in the U.S. Advice to those outside
the U.S. should necessarily differ in a number of ways.

- quote -

At the end of the road, and simply put, high grade bonds do
one very important thing in particular: Reduce risk.

They do other things as well, but that's the important one
for people in retirement.

Folks should remember that the inverted bond yield curve we
now have is unusual. Ordinarily, money market rates are much
lower than those of bonds with a five-year maturity or so.

Elle schrieb:
- quote -

I asked Jose the same question the misc.invest.mutual-funds forum.
He is also NOT in favor of using bonds.

I wroteThats intersesting you said that because I read a book here in Germany
about MPT and EMT and in the diversafivation Bonds were NOT recommended
in the conservative area of the Portfolio.

Even money market funds can be used but NOT bonds.
I think this had to do with cost reasons, but I really do not understand
why?
<<<

I always thought corporate bonds (recomended by bank and private
advisors) is an excellant way to cushion out the turbulance especially
at the end of the road.
Now I hear different?


CU
John

"jIM" <noreplysoccer[at]hotmail.com> wrote in message
news:1168444167.833084.289690[at]i56g2000hsf.googlegroups.com...
- quote -

I wouldn't expect nor wish for those returns. A 12% wish might mean a 20%
decrease. I simply made up those return numbers to state an anology.
Personally I'm aiming to give myself a shot at 8.5 or 9% but would be just
as happy with 7.5% or 8%. Just trying to give myself a shot at that.

- quote -

I'm trying to determine my mix of Value versus Growth so I have do some
research on that first. My 80% stock allocation is presenting itself as the
following: Is it too diverse to accommodate bond holdings?


15% Large cap Canada
10% Medium Cap Canadian
10% Canadian financial (including insurance companies etc.)

5% LC USA
10% MC USA
10% SC USA

10% European
5% Japan
5% Far East without Japan

Canadian financials pay very large dividends so that is why I am devoting
10% to this sector. Is this to much to allocate to one sector? This sector
is about 20% of Canada's top Index the TSX. It's a growth and income and
reinvestment allocation. Plus the Canadian small cap is way too wild west
for me to consider at this time. Too many stocks under $5.00 a share for a
newbie.

American stocks will be expensive esp. the large cap that's why only 5%.
Once I have some capital I can readjust down the road.

All earnings will be reinvested.

- quote -

If we are talking about drawing down, then bonds have a significant
impact on the draw down strategy. I do not remember drawing down being
a primary discussion point, as OP is ~30 years from the first year of
draw down.

- quote -

portfolio. 100% stocks might approach this, adding bonds would
probably reduce how often a portfolio reaches 12% returns.

- quote -

I think bonds limit growth potential... to a certain extent.
I think if we are in a bear market that an 80-20 mix would beat a 100-0
mix.

These are my opinions... past performance is no guarantee of future
performance.

bonds reduce volatility and help preserve principal
bonds also help provide an income stream

it is probably likely a 60-40 mix is less volatile than an 80-20 mix.
The 80-20 mix is probably less volatile than a 100-0 mix. There is no
one size fits all (if you are comfortable with 80-20, then go for it).

100% stocks does not mean 100% S&P 500... definitely diversify
regardless of 80-20 or 100-0.

Large Caps-domestic
Small Caps-domestic
Large caps-foreign
Small caps foreign
Maybe a mid cap, growth or sector fund as well
Maybe a bond fund or two
Maybe a Value fund as well.

zxcvbob,

You are (eventually) right that bond prices rise and fall with an
inverse relationship to interest rates. But I disagree that the ability
to hold bonds to maturity in an increasing interest rate market is a
substantial bonus over bond funds.

The reason that bond prices fall as interest rates rise is becuase the
old bond's coupon payment is inferior to that of new, comparable bonds.
Sure you could hold to maturity and recapture your principal, but you
recieved a lower than market coupon payment the whole time.

Often it is as equally advantageous to sell the old bond at a discount
and purchase a new one with a higher interest rate. The loss of
principal is recouped by the increase in interest payments.

Market equilibrium for comparable bond products contradicts your
arguement.

"The Henchman" <heyhey[at]isforhorses.com.easynews.com> wrote
- quote -

I am a bit irritated that folks present data about past
stock market behavior as though that behavior is guaranteed
to continue into the future. When a celebrity commentator
does it, it's the hallmark of a hack, AFAIC. Here at MIFP,
it's arguably mostly bad writing, but writing that
nonetheless seriously misleads. It's easily corrected. E.g.
from another poster on January 10th, we have: "Over long
time periods stocks tend to reduce volatility on their
own..." Change the verb to "have tended". Otherwise, it
reads like one can predict the future when it comes to
stocks. On the contrary, it's all a collective hunch.

I do not consider this nitpicking. It goes to critical
thinking skills when it comes to financial planning, skills
essential to feeling comfortable about one's decisions. One
should always be able to explain the reasoning for this or
that decision, and that reasoning had best not be simply,
"because so-and-so on Usenet, TV, or the radio said so."

- quote -

Replace "will have" with "has had" above, etc., and we're
fine.

- quote -

Little aside: IIRC the Trinity Study's bond data was from
individual, long-term maturity, investment grade corporate
bonds, not bond mutual funds. Not sure if this would make
too much difference here. I am persuaded that most people
will be most comfortable with intermediate term investment
grade bonds (individual ones or perhaps in a low expense
ratio mutual fund), if past performance continues.

- quote -

That's certainly the idea, but I defer to how the Trinity
Study authors, among others, put it.

- quote -

The way to put this, to be clear and accurate, is "In the
past, /have/ bond holdings limited growth in a 30-year time
horizon?... " And so forth.

- quote -

I think it's important to remember asset allocation is not
an exact science. This is most importantly because asset
allocation assumes the future will repeat the past. Of
course this has turned out not to be always so.

What does make a good deal of mathematical and logical sense
to me is to diversify.

I would use the free online tools linked at
http://home.earthlink.net/~elle_navorski/id8.html, among
others, continue to read, study, and ask questions here,
then make a decision on allocation for today. Subsequently
be open to adjusting this allocation as your sense of the
future changes, if it changes. For your situation, you might
find the variation in the output of these tools, along with
the nuances of their approaches, helpful.

Just don't attempt to chase short-term returns. That's a
proven failing strategy, AFAIC. Hopefully you know this
already.

"Elle" <honda.lioness[at]nospam.earthlink.net> wrote in message
news:9iXoh.8397$pQ3.1318[at]newsread4.news.pas.earthlink.net...
- quote -

can you translate this for me? (I'm making up return numbers here for this
analogy)

I think what Elle is saying is a portfolio of 100% stocks will have average
positive returns of say 10% over say 25 years but will have steep negative
periods several times over which may co-incide with your ability to draw a
retirement income (timing)

If you introduce and hold long term bond positions into your portfolio and
find a right split between stocks-bonds then you can say your portfolio can
come close to those average 12% returns however it comes close to that
similar all stock returns not because of growth but because it softens the
losses during negative periods. Is that what you are saying Elle?

Is this what the argument is? Some people are saying any bond holdings for
long term investing never mind plans to withdrawal soon. I'm asking from
the point of a 30 year old with a 30 year plan. Do bond holdings limit my
growth potential or does an 100% stock/non-bond holdings funds portfolio
limit my growth potential because of the steeper negative periods offset the
higher positive returns in bull markets for stocks?

I'm working on an 80-20 stocks:bonds portfolio.

- quote -

Create a small position at age 40, then gradually increase this
position as retirement grows closer. This is my opinion- there are
other ways to do this.

- quote -

I do not think income level suggests a person's risk tolerance.
Conservative would be for someone which does not like seeing their
principal change by 10% in one day, week, month or year. These are my
interpretations, others will differ.

How much cash do you have relative to a years worth of income? I think
conventional wisdom suggests a cash position of around 2-6 months of
expenses. If you keep a larger cash position, I could probably come up
with some logic to invest the rest of portfolio more aggressively (less
bonds, more equities).

At a young age, you have time on your side to ride out a bear market.
Even if the time is 10 years, you have the time to recover. Over long
time periods stocks tend to reduce volatility on their own (bonds would
be needed to ride out short term volatility). Long term IMO is more
than 7 years.

In addition your idea of selling bond positions in bear markets to buy
equities would be a form of rebalancing. That is a good idea, IMO.

The Henchman wrote:
- quote -

I think that's a good idea. Vanguard is pretty much the leader in low
MER index mutual funds.

If you want a low cost short term bond fund, you might as well just go
with a high yield savings account.

"Will Trice" <wwtrice[at]paragondynamics.com> wrote
E
- quote -

Or that's your poor defense for academic laziness. :-)

- quote -

Asking for a citation is justified.

I cited it a few months ago here and thought you might
remember. No big deal.

- quote -

For the purposes of advising someone, I have no idea. I will
only speak to what has happened in the past and perhaps the
underpinnings of what drives stock price increases.

Talking about the future the way Jim did seems to imply
possession of the proverbial crystal ball. Not to shoot him
down. After all, maybe the problem is understanding the
importance of phrasing here. "Stocks are your best bet for
the long run," is more correctly phrased as "in the past,
stocks have been the best bet for the long run."

Elle wrote:

- quote -

Sorry, when I said Trinity Study, I thought you would figure Trinity
Study. So for future reference, I meant the Trinity Study.

- quote -

Wow, touched a nerve...

- quote -

I guess Sarge wasn't the only one to get coal in the ole stocking...

- quote -

I think the only point that should be inferred is that bonds reduce
volatility.

- quote -

I'll ignore this since there's no cite... Just kidding, I believe you.

- quote -

Admittedly many of us (but not me) are fond of quoting the 10% - 11%
historical returns, but do you honestly think that bonds will outpace
stocks over the next 60+ years (the OP's investment horizon)?

-Will

"Will Trice" <wwtrice[at]paragondynamics.com> wrote
- quote -

No, not "duh." Be exact with your citations or be ignored.
It's a moderated newsgroup with admirable goals, so a
professional patina might not be such a bad goal, ya know.

I thought you might be paraphrasing some commentator. I
refused to yet again do homework another poster should have
done before posting.

- quote -

It says a 100% stock portfolio has not been as safe as a mix
of stocks and bonds when drawing down. A lot of finer points
might be inferred from this. However, I think it prudent to
just let it stand in some opposition, in my opinion, to
Jim's statement. People annoyed by this might also want to
consider Robert Shiller's (Yale prof much quoted in the
media) recent proposal that, given a choice between all TIPs
or all stocks, he'd go all TIPs.

Also, my sense is there is some monday morning
quarterbacking going on here: The average return of stocks
over long periods has been x, so it will continue to be x,
and since x is so high, it was a smart move to invest in
stocks back then, and will be in the future. This
implication is a disservice to newbies.

Elle wrote:
- quote -

From the Trinity Study (duh): http://bobsfiles.home.att.net/trinity.htm

- quote -

As far as I can tell, these tables do not address return. The Trinity
Study, as far as I can tell, does not say that you will get the same
return as a 100% stock portfolio by introducing bonds. It does say you
will get less volatility. Jim's point was that the reduced volatility
comes at the price of reduced return. The quote I gave from the Trinity
Study seems to agree with Jim.

- quote -

I don't think anybody is ignoring history in this discussion. The
Trinity Study calls for bonds to be introduced in retirement. That fits
Jim's conditions for bonds. Not sure where the criminality is here...

-Will

joetaxpayer wrote:
- quote -


You're right. I got it exactly backwards. D'oh! You buy long bonds when
rates are dropping. Very short-term bonds (if bonds at all) when rates are
rising.

I hate it when I do that.

Thanks,
Bob

- quote -

Rising interest rates = falling bond prices. Your statement above is
just wrong.

kastnna wrote:

- quote -


I disagree. If interest rates rise and your bonds lose value, you have
the option of holding individual bonds to maturity and getting your
capital back. AFAIK, bond funds do not have maturity dates.

Another reason to invest in bonds is if interest rates are rising, bonds
will appreciate in value at a time when stocks are especially vulnerable.

Bonds are not all that expensive to invest in if you buy original
issues. They do tend to incur high expenses and commissions if you
buy... what's it called... on the secondary market. [that might not be
the right terminology] I buy bonds direct from the US Treasury outside
my retirement accounts for my bonds allocation, and my tax-deferred
retirement are almost 100% equities (and a few high-yield exchange
traded debt securities).

Best regards,
Bob

"Will Trice" <wwtrice[at]paragondynamics.com> wrote
- quote -

It would be nice to know from where you got this quotation.

I worked from the Trinity Study matrices on success rates at
http://www.retirement-income.net/run_out.htm (see tables at
bottom). The last sentence above is completely in conflict
with Jim's argument.

I think it's criminal to insist that a person hold no bonds,
as though one knows the future that well, and ignoring
history as well-documented at the site above.

"Turtle" <mhauser-rite-on[at]arcor.de> wrote in message
news:4f81f$45a39a0c$543b0a5b$3717[at]news1.surfino.com...
- quote -

Management exspense ratio.

Hi Henchman,
The Henchman schrieb:

- quote -

What is MER?

John