RetireJapan

Kanto wrote: ↑Tue Aug 04, 2020 5:45 am Surely many here cannot continue to be 100% equities for the long term though! What is the plan? What are you going to transition to?

RetireJapan wrote: ↑Tue Aug 04, 2020 10:17 am...
This is a pretty good explanation of why you might want to hold bonds, even at the moment: https://awealthofcommonsense.com/2020/0 ... right-now/
...

Says the retiree who doesn't own any bonds...! (Actually, I do have a couple very actively managed closed-end funds that 'play' the bond market, but they're both leveraged, and much more volatile, so I don't think they really count as bond funds.)

taneandy wrote: ↑Tue Aug 04, 2020 4:21 am We're currently at around 75% stocks, 15% bonds, 10% REIT at 36.
Our current savings rate is quite high relative to our total savings so I quite happy to be almost completely invested in stocks.
Most of the bonds and REIT are in つみたてＮＩＳＡ, which is probably not ideal in terms of taxes, but means that we can just keep buying the same thing in those accounts for the next 20 years.

TokyoWart wrote: ↑Tue Aug 04, 2020 10:32 pm...
Very curious because you're actually retired about your experience with your asset allocation. What is your split between Japan/US/other international for equities? Have you changed it since starting retirement (e.g. to make more or less in the Japan or US)?

captainspoke wrote: ↑Wed Aug 12, 2020 11:41 am I guess there are a couple factors involved—why I don’t have any bonds. Here’s an angle or two from which I look at things.

First, being retired, thinking of things in buckets makes sense to me, and a simple view of that is three buckets—short, mid, and long term. My short and mid term buckets are covered, and most of what I hold in equities is for the long term.

Short term, I have cash on hand here (yen, simple bank acct) that should last six years, tho longer if there are more years like this one (the virus, so reduced spending). For the mid term bucket, I have an equal amount of cash in the US (dollars, a brokerage acct). So between those, I’ve got 12+ years covered. Which is why the rest is in equities (bucket three).

But still, why no bonds? My answer is, they don’t satisfy my (reptilian?) investor brain. I guess I just don’t “get” bonds (meaning bond funds as anyone might buy). I do understand the usual stuff (or have read it)—portfolio theory, the impact of interest rates on different maturities, that kind of thing, and of course have looked at their performance in troubled times, e.g. this year and 2008-2009. Okay, but they just don’t ring my bell.

Cash does most of what the article above points out as advantages for bonds. It hedges volatility, can be used to rebalance, and can be used for spending. The box that cash does not tick (according to the article above) is protection against deflation. (<–I disagree, or at least question whether bonds do this, but I’ll leave that aside here.)

So then, equities. Rather than leave that as a gray mass, here’s a breakdown. To make the proportions add up right, (1) cash in dollars (bucket two, above) is 16%. The rest is: (2) stock ETFs—57%; (3) individual dividend stocks—19%; and (4) other—8%. The latter two provide some income, something that you’d usually expect from a bond fund. In fact, one POV on this portfolio is: stock ETFs—57%; everything else—43%, which is close to a ’traditional’/common 60-40 split. Alternatively, subtract the cash, and everything else (84%) is long term, a 12+yr horizon.

The “other” chunk is two Pimco CEFs, which, ironically, bet on the bond market. High fees, but they’re leveraged, and pay ~10% and ~12% respectively (dividends). Sometimes volatile, but long term solid. One is PTY, if you want to look, rated well by morningstar. But since bond funds these days only yield about 1.5%, these have a little more oomph, in that respect.

I now have eight dividend names, including one that I’ve had since 2008, which has literally paid for itself in dividends (would a bond fund ever do that?). But most are much more recent. One key point would be that they all yield more than 6%. So again, income, but amped up from what a bond fund would pay. More volatile/risky than a bond fund, but I accept that. And yes, I certainly have paid taxes here on these (the div stock and CEF payouts). But as US, I slip thru the cracks, tax-wise, and generally don’t pay anything there.

Last, the stock ETFs are “core”-like, in my mind. I’d trade—and have sometimes traded—any of the above, but would like to hold these ETFs forever (let someone inherit them). They’re mostly growth and don’t pay much in dividends, but their purpose is different—gains (unrealized).

What do you think?

captainspoke wrote: ↑Wed Aug 12, 2020 11:41 am
The “other” chunk is two Pimco CEFs, which, ironically, bet on the bond market. High fees, but they’re leveraged, and pay ~10% and ~12% respectively (dividends). Sometimes volatile, but long term solid. One is PTY, if you want to look, rated well by morningstar. But since bond funds these days only yield about 1.5%, these have a little more oomph, in that respect.