In my view, Jared is doing a much better job than D+ in trying to explain fixed income, risk management, and asset liability management, especially to individuals who are not investment professionals or hold equivalent expertise. 

At same time, other factors must be considered.  A boomer recently entered or close to entering retirement with $10mm+ in retirement savings or equivalent (based on pensions, etc.) can take more risk via asset allocation than another boomer with just $2mm to $3mm in retirement savings or equivalent.  However, risk via asset allocation also depends on annual budget and income desired for living in retirement. I.e., Need to evaluate the household balance sheet and income statement.

E.g., If $10mm household is planning to spend only $250K / year, they can take substantially more risk than $2.1mm household hoping to spend $125K/yr, given same longevity expectations.  In this example, $10mm investor might have reasonably higher than 35% allocation (perhaps 50%), but $2.1 mm investor should not.  If stock market tanks early in retirement for $2.1mm investor highly over-allocated to stocks, the household will quickly need to change its plans for spending in retirement, and make major lifestyle adjustment. Simply put, that $2.1mm household cannot tolerate same return volatility, and should likely be in the 35% range for allocation to equities, especially if very near retirement, or in early years of retirement, with 15+ years of expected longevity remaining.

According to Gary Shilling bonds have outperformed stocks by 500% since 1980. Gary buys 25 year zero coupon bonds for appreciating, riding the bull from 1980 to 2020, forty years, two generations. Wow. Wish I was that smart. I believe a person should own 50 ounces of gold and 1,000 ounces of silver, real US Treasury money, for each person to protect. Gold is at the top of John Exeter’s pyramid. Gold is a claim on the past. All paper assets are a claim on the future. If it ships in a wire, it’s not real. Gold and silver is real money. Debt notes, computer credits, Facebook, Amazon, Netflix, Google, Wall Street are not real, all part of a global Ponzi scheme. Jared, I agree with you about your age in bonds. I do that. But research shows a portfolio of 80% bonds and 20% gold bullion is a safe and stable wealth portfolio. Gold is real money. Gold is what the central banks of the world hold as real money, not stocks, not bonds, not silver, but gold. For those wishing to get safety and appreciation consider 80% bonds, 20% gold. More to learn on youtube at balangp, a web site dedicated to gold research. No one knows the future. Paper assets are claims on the future. Gold is a claim on the past. Think about it.

Garbage in garbage out. Using fake debt notes to measure reality is insane. Use real US Treasury MONEY, not debt notes to measure reality. In real MONEY the Dow stocks are down 35% from 1966 to 2019, 28 ounces of gold in 1966 to 18 ounces in 2019. Same with wages. Measured in real US Treasury silver dollars wages are DOWN 35% from 1966 to 2019. In fake funny money wages and stocks are fabulous. What did I learn in finishing school? To say fabulous instead of bull shit when talking to people. The funny money tells people what they want to hear. The television and computer tells people what the want to hear. USA is DOWN 35% from 1966 to 2019 in real US Treasury money. USA is number one, flying high, on debt binging. US public debt in debt notes up from $300 Billion in 1966 to $21 Trillion in 2019. Nobody cares. Go now. Pay later. It’s all just a massive fraud, a massive debt bubble. Protect yourself. Gold has outperformed stocks from 1966 to 2019, doing nothing, taking no risks. Gold has outperformed stocks from 2000 to 2019. Stocks are a debt bubble, as are bonds. I prefer the Harry Brown permanent portfolio, 25% each in gold bullion, currency, stocks, and bonds. Let it ride.I have no stocks and probably never will after being BURNED in the 2000 tech crash and the 2008 crash, both down over 50%. Now over half my assets are in real estate, with excellent rental income, which I consider a bond. Protect yourself. No one else can or will.

So what happens to the stock market when banks start paying companies to borrow money (i.e. negative interest rate loans, since the banks are still making money on the spread between these and the negative interest they are charging their depositors or central banks…), and those companies start buying back their stocks again?  Or how about if companies start issuing their own negative interest rate bonds and using the proceeds to buy back their stock?  In a negative interest rate world, it makes no sense to issue or have outstanding stock, and all the messy things related to stocks (like governance, reporting, dividends, etc.).  This time it really is different!

I have a low allocation to bonds for the same reason I don’t aggressively pay down my mortgage: because the government is broke and their path of least resistance in bankruptcy is to print money.  Even if the macro economy is weak and deflationary, at some point the government will be so far in debt that no one will lend to it and they will have to print to keep the lights on, and that may lead to a currency crisis (assuming they can’t enforce everyone’s using a government run crypto). 

Yes, it looks like bonds have room to keep rising, even into negative rate territory, but this also pushes the stock market up.  And when the economy finally decides to roll over and the government has to print its way out of bankruptcy, bonds will fall hard.  Yes, they’ll still pay their coupon but inflation will eat that.  In the mean time, companies, or at least some of them will be able to increase prices as costs increase and stay profitable and continue to pay dividends that continue to beat yields on investment grade debt.  I’d rather own an asset that can adjust to economic conditions of inflation and possibly a currency crisis.

Jared, give yourself a break.  You’re a solid “C+”, at least!  Cheers!

Jared, I am 71 years young.  Successfully managed my own investments until October of 2008 when my greed allowed me to lose 40% of my portfolio. I knew I would never recoup my loss because I would never again be 90% into equities.  I hired a “wealth manager” to ease me back into the market until last year when I became increasingly concerned of a recession.  He argued with me to keep a 60% position in stocks to the point I finally fired him.  I could not bare to suffer another event like the last recession so I adjusted my expectations for retirement.  I chose to continue working beyond my original plan and resigned myself to the idea of leaving a smaller legacy to my daughters.  Last year I moved 90% of my money into 2 years CDs (3%) and am trading the remainder in ETF’s.  I’m all about wealth preservation now.  I follow your writings because
we are on the same planet.  I’ve not yet bought in to your 20/20 plan because I’m producing comparable gains at the moment.  I get your views on bond investing but they too go down when the market tanks, just not as much.  I will continue to be a follower of your insights.

I am a boomer of retirement age but still working full time. My current 401K is 41% stocks 25% bonds and 34% money market. My allocations for new contributions are 19% stocks 31% bonds and 50 % money market. My own IRAs from previous employers and from my own contributions include stocks, bonds (either short term funds or individual government bonds, CDs and cash as well as precious metals ETFs. The latter have been good performers for the last year. My current 401k has no precious metals option. All of the stock funds except for 3 index funds have big fees. I buy the low fee indexes. My Wife has more stocks because she keeps the same 60:40 ratio that her parents left her. But it gets rebalanced every year. She also has bond mutual funds in her other brokerage accounts plus treasuries and CDs. That is the same for her rollover IRA. Most of her stocks are mutual funds or ETFs. She has a large REIT index fund in one.

When you said “Why invest in bonds when interest rates are so low” I took the unwritten part of that to mean “because they already expensive”.

I know you touched on this a little last week, but for me it’s more of “Why invest in bonds when I can get 2.45% in a CD right now?”. I have to get into some fairly high risk stuff to get a point above that so it feels safer to just keep renewing those CDs until those rates start to drop again. Is there a counter-argument to this on why you should buy bonds right now anyway? Thanks.

I tend to agree with Carl Rhinehart but with a slightly different slant.  I am recently retired with no pension. I understand your article, but I don’t think it addresses someone who has enough money that he or she can have basically several years of money in cash and very short term CD’s, bonds and bond funds along with a portion of investments in income stocks but still have a high percentage of investments in stocks. Many articles indicate that 4 or 5 years of cash should be enough to last out every bear market except the one during the Depression.  I think that a young retiree has to have a fairly significant percentage of investments in stocks-way more than 35%. 65% bonds will just be a long term recipe for getting killed by inflation. Big inflation has been dead for a long time but like everything else, it will come back. Yes, stocks can get slammed by inflation, but eventually companies will raise prices and income and stock prices will go up. But 2% long term bonds will get hammered and the 2% cash return won’t be able to buy much.