When to move away from an all-stocks approach to include bonds

[AreTheyTheLemmings?]

As things stand, I hope to continue working for at least another 15 years (hopefully 20). For now, I'm just accumulating eMaxis Slim and Vanguard All Country in Tsumitate Nisa and iDeco because I can tolerate the level of risk that poses. But at what point is it prudent to begin reducing risk, e.g., by moving incorporating bond funds?

I'd like to hear what you think.

[RetireJapan]

I'm probably a couple of decades out (depending on how lazy I get) and I bought bonds this year. My current target allocation is 80-20. I'm going to see how that goes.

We also have a substantial amount of cash though, which performs a similar role to bonds in providing liquidity and smoothing out stock market drops.

[AreTheyTheLemmings?]

I'm probably a couple of decades out

For reference's sake (if, of course, you don't mind my asking): How many years of investing in index funds behind you?

[RetireJapan]

I'm probably a couple of decades out

For reference's sake (if, of course, you don't mind my asking): How many years of investing in index funds behind you?

Had index funds from the beginning (2008 or so?) alongside other things (value stocks, gold miners, dividend stocks, etc.). Started with VT.

100% index funds from Feb/Mar this year.

[AreTheyTheLemmings?]

Thank you.
Anyone else care to weigh in? When do you consider it a good time to shift away from all stock funds and start including some bonds?

[goran]

Probably slightly unrelated and I confess my zero knowledge about bonds in advance.
But I hear that during the recent drop in market (2022), I have heard that bonds are also not doing particularly well. (https://www.bloomberg.com/news/articles ... o-4-yields)

Do people in retirement relying on bonds to sustain the market downturn, facing harsher times right now?
Anybody have any insight on this? Were bonds able to protect assets for near future use properly in 2022?

[TokyoBoglehead]

Probably slightly unrelated and I confess my zero knowledge about bonds in advance.
But I hear that during the recent drop in market (2022), I have heard that bonds are also not doing particularly well. (https://www.bloomberg.com/news/articles ... o-4-yields)

Do people in retirement relying on bonds to sustain the market downturn, facing harsher times right now?
Anybody have any insight on this? Were bonds able to protect assets for near future use properly in 2022?

"Bonds" make up most of the investing universe. They not so straightforward.

There are bonds, and bond fund. A U.S treasury bond for example will return the stated yield, regardless of the market if your hold it for duration. Market movements won`t mater.

Newly issued US treasuries will reflect current interest rates, so if you want to sell a bond before it matures, it will be worth less in comparison.

Most passive investors should focus on Developed government bonds, or broad indexes.

Most Japanese investors though their brokers can:
A. Buy Bonds directly
B. Buy Japan list ETF/Fund - Hedged/unhedged
C. Buy American listed bonds

B and C are very straightforward. But I am experimenting with A viewtopic.php?p=24549#p24549

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"When" to invest in bonds is a personal question. No one can answer for OP.

They need to access their risk tolerance, their future financial goals, and their future needs.

[mighty58]

A strong case can be made for 'never", particularly if your investment horizon is long term. This may sound completely contrarian but is a conclusion supported by past data (see: https://edrempel.com/high-risk-of-bonds/ )

In the drawdown phase of life, the bulk of your portfolio remains long term, but you have a small portion being liquidated for short term needs (eg. drawing down 4% per year). In this case, 2 years or so worth of living expenses in cash can fully perform the risk reduction role that you likely think you're going to get from bonds, without handicapping the other 90+% of your portfolio that is still invested and growing.

[captainspoke]

Some (a lot?) of this depends on how much you have in savings/investments. On one end of things, if you have a lot, then you're free to stay in stocks, since a downturn won't damage your lifestyle. On the other, if you don't, then there will be the appeal of bonds as "safe", or a counterweight, or some such. So one thing to do would be to ID where you are along that scale, and proceed from there.

The 'bucket' approach to divvying up your investments to one thing or another is a different way to proceed. Just above, might58 is referring to two years of living expenses in cash, which is kind of like the first bucket in a three-bucket strategy. The first bucket (cash) is for that two year window, the second bucket would have an 8-10 year window, and the third would be more than ten years.

The third bucket (IMO) should be all stocks/equities. A 10yr+ time frame on equities almost never loses, while it might also gain quite a bit. And the first bucket will be cash, or perhaps very short term bonds.

So that leaves the second bucket. There's all kinds of advice for that...! Some would say bonds, and bonds only, Others might slide the scale so that this bucket would have 30% equities. Or 50%, or 70-80%, and so on.

Oh, and note that the bucket approach is for retirees, generally not for someone younger and still working/investing. Still, being aware of what strategy/allocation you might use as a retiree--this could work to show an allocation target that you'd like to be at on retirement. E.g., you might try to invest in equities now (filling the third bucket), and then, approaching retirement, direct your savings (more or less) into the second bucket.

[AreTheyTheLemmings?]

Thanks for those responses, everyone. Much food for thought.

Some (a lot?) of this depends on how much you have in savings/investments. On one end of things, if you have a lot, then you're free to stay in stocks, since a downturn won't damage your lifestyle. On the other, if you don't, then there will be the appeal of bonds as "safe", or a counterweight, or some such. So one thing to do would be to ID where you are along that scale, and proceed from there.

Very interesting. Thanks.