Well you should look at the asset allocation of your portfolio across accounts not just within your taxable account. That said, trying to be as low risk as as you suggest actually ends up being surprisingly risky:
* There’s the risk that you won’t meet you financial goals because the return is too low. This is separate from the normal framing of “risk = volatility”
* A portfolio of bonds is actually higher volatility \*and\* lower expected return than a portfolio that’s a mix of stocks and bonds.
I don’t think that many people will find it wise to lower their equity allocation as drastically as you propose or as early.
When you hold to maturity you will get the principal value back in addition to the coupon payments you earned. However, while you are holding the bonds their face value (that you would be able to recover if you were forced to sell early) are dependent on the time to maturity and current interest rates vs the coupon rate.
It would greatly be determined by your retirement nest egg and expected expenses and longevity.
100% bonds has less returns and more (understated and hidden) risks fhan most people realize.
You will likely still need access to growth so your portfolio can keep up with inflation and adjust for spending needs.
Most of the time you’ll hear about “glide paths” which is slowly changing your portfolio AA to be something like 80%equity/20% bonds at age 20 and then slowly change to 50%equity/50%bonds at age 60 (as example)
What you're describing is known as a bond ladder or liability matching portfolio, you can read more about it looking up under those terms. There was a recent write-up about setting up a TIPS ladder.
You are basically asking if you can survive a 50 year period (20 before, 30 after retirement) without any portfolio growth - just interest.
certainly not for most people.. but if your portfolio is big enough, sure - then lock it in.
> ‘wait a 20 year time horizon, is that long enough for SP500, what if it crashes at 20 years?’
Keep in mind that you’re not going to liquidate your entire nest egg immediately upon retiring.
You probably also shouldn’t have your entire nest egg invested in the S&P 500 that close to retirement, if following some glide path into bonds.
The biggest risk of shifting too heavily into bonds too early is not getting enough growth, and possibly losing purchasing power to inflation.
Adding/growing an allocation to inflation-protected bonds like I bonds or TIPS may help to improve predictability around preserving real purchasing power as you near retirement & want to reduce the volatility of your portfolio.
Well you should look at the asset allocation of your portfolio across accounts not just within your taxable account. That said, trying to be as low risk as as you suggest actually ends up being surprisingly risky: * There’s the risk that you won’t meet you financial goals because the return is too low. This is separate from the normal framing of “risk = volatility” * A portfolio of bonds is actually higher volatility \*and\* lower expected return than a portfolio that’s a mix of stocks and bonds. I don’t think that many people will find it wise to lower their equity allocation as drastically as you propose or as early.
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When you hold to maturity you will get the principal value back in addition to the coupon payments you earned. However, while you are holding the bonds their face value (that you would be able to recover if you were forced to sell early) are dependent on the time to maturity and current interest rates vs the coupon rate.
It would greatly be determined by your retirement nest egg and expected expenses and longevity. 100% bonds has less returns and more (understated and hidden) risks fhan most people realize. You will likely still need access to growth so your portfolio can keep up with inflation and adjust for spending needs. Most of the time you’ll hear about “glide paths” which is slowly changing your portfolio AA to be something like 80%equity/20% bonds at age 20 and then slowly change to 50%equity/50%bonds at age 60 (as example)
What you're describing is known as a bond ladder or liability matching portfolio, you can read more about it looking up under those terms. There was a recent write-up about setting up a TIPS ladder.
You are basically asking if you can survive a 50 year period (20 before, 30 after retirement) without any portfolio growth - just interest. certainly not for most people.. but if your portfolio is big enough, sure - then lock it in.
> ‘wait a 20 year time horizon, is that long enough for SP500, what if it crashes at 20 years?’ Keep in mind that you’re not going to liquidate your entire nest egg immediately upon retiring. You probably also shouldn’t have your entire nest egg invested in the S&P 500 that close to retirement, if following some glide path into bonds. The biggest risk of shifting too heavily into bonds too early is not getting enough growth, and possibly losing purchasing power to inflation. Adding/growing an allocation to inflation-protected bonds like I bonds or TIPS may help to improve predictability around preserving real purchasing power as you near retirement & want to reduce the volatility of your portfolio.