I am a little light on fixed income investments except for in a few corporate 401Ks

with the Back Door Roth coming up again in December

what is your favorite way to invest in long term principal preservation and moderate growth?

Private Credit.

Currently yielding in the 9-10% range.

Typically will be mostly first lien senior secured loans.
Companies with an EBITDA around 100mm.

I feel pretty secure. Not risk free but I'm comfortable with it.

In my mind it's like this. Would I lend money to Whataburger for 9.5% interest?

nactownag said:

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Private Credit.

Currently yielding in the 9-10% range.

Typically will be mostly first lien senior secured loans.
Companies with an EBITDA around 100mm.

I feel pretty secure. Not risk free but I'm comfortable with it.

In my mind it's like this. Would I lend money to Whataburger for 9.5% interest?

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I assume minimum investments are $500,000? $1M?

I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

We have a municipal bond ladder that covers most of ours and then I have some play money in private credit to test those waters.

Depends on the structure and terms, but many have much lower minimums.

You'll give up some liquidity. But there are some BDC funds that are quarterly liquid.

So not something to put your emergency fund in.

chris1515 said:

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I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

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Similar situation

I've been adding to my 401K broad market bond fund over the last year but I'm still at just 15% bonds. The rest is S&P, Russell and total world equities


And while I get bonds offers more stability and diversification I keep thinking.....


If the S&P really takes a crap and doesn't recover. Does it really matter where our money is? Will anything preserve wealth under such a catastrophic situation? Same goes for international stocks


I've also added about 1.8% of my total portfolio into bitcoin via IBIT

jamey said:

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chris1515 said:

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I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

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Similar situation

I've been adding to my 401K broad market bond fund over the last year but I'm still at just 15% bonds. The rest is S&P, Russell and total world equities


And while I get bonds offers more stability and diversification I keep thinking.....


If the S&P really takes a crap and doesn't recover. Does it really matter where our money is? Will anything preserve wealth under such a catastrophic situation? Same goes for international stocks


I've also added about 1.8% of my total portfolio into bitcoin via IBIT

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About all you can do is diversify as much as you can. When this thing takes a dump, we will all be impacted.

At that point, it will be a situation where one-eyed men will be kings of the blind.

jamey said:

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chris1515 said:

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I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

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Similar situation

I've been adding to my 401K broad market bond fund over the last year but I'm still at just 15% bonds. The rest is S&P, Russell and total world equities


And while I get bonds offers more stability and diversification I keep thinking.....


If the S&P really takes a crap and doesn't recover. Does it really matter where our money is? Will anything preserve wealth under such a catastrophic situation? Same goes for international stocks


I've also added about 1.8% of my total portfolio into bitcoin via IBIT

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Agree. I plan to retire in 5 years at 55. I've run all sorts of simulations, and big picture, staying aggressive always seems to be the best odds. If the S&P500 takes a dump, you aren't gonna have enough in bonds to save your ass. And if you have so much in bonds that it would save your ass, you're already running a much higher risk of eventually running out of $$$ because your long-term return sucks - inflation of your cost to live is gonna kill you. Big picture, stay aggressive and just make sure you have enough put away to ride out extended downturns.

Do you have a particular tool you use for simulations?

This is a fairly simplistic one but is cool to see how your portfolio would survive in every set of historical period of the market.

https://firecalc.com

But I've also built my own in excel which I've run all sorts of combinations of returns, inflation assumptions, etc. I also have Right Capital's software, which is really cool because not only does it help you understand outcomes (with confidence levels) of various combinations of portfolio aggressiveness, it also provides sensitivity analysis as well as tax strategy - particularly to support Roth conversions. Again, you can run all sorts of simulations, but everything I do keeps coming back to keeping a diversified equity based portfolio (ie very heavy S&P 500) offering the most likely odds of success in not running out as well as having the most at the end. A lot of advisors use the same software to manage their clients. I got lifetime access to it for like $200 thru an advisor

To the point above, there is a near term spend subset that being conservative makes sense (I'd say <5 years of expenses), anything beyond that and I keep coming up with staying equity aggressive wins

What do you call aggressive in equities. I'm 55 and was thinking about taking my 15% bonds to 20%

The rest

60% S&P
10% Small and Mid Cap
15% International
15% Bonds currently

That's similar to a few aggressive allocations from firms. The caveat being a lot of firms are introducing more "alternatives" to their allocation tables depending on your liquidity requirements (Diversified hedge funds, long/short, event driven, private equity/credit, etc.)

chris1515 said:

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Do you have a particular tool you use for simulations?

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This one is incredible.

Email Craig Israelsen at 7Twelveportfolio.com and tell him you saw him mentioned on Josh Scanlen's youtube channel.

Best $100 I've spent in a while. It's an outstanding spreadsheet simulator.

craig@7Twelveportfolio.com

jamey said:

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What do you call aggressive in equities. I'm 55 and was thinking about taking my 15% bonds to 20%

The rest

60% S&P
10% Small and Mid Cap
15% International
15% Bonds currently

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That would fit the aggressive mold. That said, instead of looking at a rule of thumb mix on allocations, the best way to look at it is with a 5 year outlook, and specifically, what net distributions from your investments do you expect to take in the next 5 years. You don't need all of that amount in bonds, but having a large part in bonds/fixed is a good way to mitigate sequence of returns risk. Then keep the rest in equities.

The logic is that the average bear market is 2.5 years, with the longest being a little over 5. So this approach allows you to stay in equities as much as possible, but protects vs sequence of returns risk. It's why rules of thumb by age allocations are not ideal - the distributions someone wants to take in the next 5 years relative to the size of their portfolio dictates the mix. Much more customized/optimized

This is a really good video for people approaching retirement. I recommend the entire thing, but starting at minute 19 is a really good example of the sequence of returns risk which he then rolls into how to manage it (which directly leads to "what should my bond mix be?")

Thanks, I'll check that out. I actually subscribe to this guy but have not seen this one

I like the idea of thinking of bonds as dry powder to use in a downturn

Granted the recent downturn saw bond prices drop pretty significantly too

I'm getting closer to retirement now and I've been told I need to dial back stocks and get to closer to a 60/40 mix with 40% bonds. The simulators and folks I've seen say this is more to reduce downside risk from low 40% to low 20% range during major events. Especially for sequence of returns risk scenario. Wish I had saved more outside a 401k.

The issue is correlation. The goal should be to find several assets that are not correlated to each other.

2022 proved that bonds and stocks aren't all that uncorrelated. Doesn't mean you shouldn't have bonds but not sure I am in the camp of 60/40

nactownag said:

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The issue is correlation. The goal should be to find several assets that are not correlated to each other.

2022 proved that bonds and stocks aren't all that uncorrelated. Doesn't mean you shouldn't have bonds but not sure I am in the camp of 60/40

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That's because over the last 15-25 years the FED has turned historical precedent upside down and proven they will be the primary buyer and seller of bonds. This tied all markets to the FEDS liquidity capacity and the money supply and is why everything has moved in tandem with the amount of liquidity in the system.

AgOutsideAustin said:

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I'm getting closer to retirement now and I've been told I need to dial back stocks and get to closer to a 60/40 mix with 40% bonds. The simulators and folks I've seen say this is more to reduce downside risk from low 40% to low 20% range during major events. Especially for sequence of returns risk scenario. Wish I had saved more outside a 401k.

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Here's the thing. You don't know when a major event will happen and going unnecessarily heavy on bonds causes you to miss out on a lot of returns when the market is fine (which is most of the time). It's why I like the 5 year anticipated net distribution view that is designed to allow you to absorb and outlast the downturns. Now for some, that may be 40% bonds/fixed. For others, it might only be 10%. Very much dependent on factors like (1) what other sources of income you have for that 5 years, (2) anticipated expenses, and (3) the size of your portfolio.

nactownag said:

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The issue is correlation. The goal should be to find several assets that are not correlated to each other.

2022 proved that bonds and stocks aren't all that uncorrelated. Doesn't mean you shouldn't have bonds but not sure I am in the camp of 60/40

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^This

DannyDuberstein said:

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AgOutsideAustin said:

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I'm getting closer to retirement now and I've been told I need to dial back stocks and get to closer to a 60/40 mix with 40% bonds. The simulators and folks I've seen say this is more to reduce downside risk from low 40% to low 20% range during major events. Especially for sequence of returns risk scenario. Wish I had saved more outside a 401k.

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Here's the thing. You don't know when a major event will happen and going unnecessarily heavy on bonds causes you to miss out on a lot of returns when the market is fine (which is most of the time). It's why I like the 5 year anticipated net distribution view that is designed to allow you to absorb and outlast the downturns. Now for some, that may be 40% bonds/fixed. For others, it might only be 10%. Very much dependent on factors like (1) what other sources of income you have for that 5 years, (2) anticipated expenses, and (3) the size of your portfolio.

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This is very accurate. Does whoever gave you the advice know your full financial picture? Simple additional factors such as (1) Do you own your home free and clear, and (2) Do you have significant pension income upon retirement; can drastically change your appropriate allocation.

AgOutsideAustin said:

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I'm getting closer to retirement now and I've been told I need to dial back stocks and get to closer to a 60/40 mix with 40% bonds. The simulators and folks I've seen say this is more to reduce downside risk from low 40% to low 20% range during major events. Especially for sequence of returns risk scenario. Wish I had saved more outside a 401k.

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How does it being outside your 401K help?

Isn't it still basically a question of stocks or bonds there too, to reduce the risk of loss from 40% to 20%

Unless you're talking high yield savings account maybe?

I bleed maroon said:

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DannyDuberstein said:

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AgOutsideAustin said:

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I'm getting closer to retirement now and I've been told I need to dial back stocks and get to closer to a 60/40 mix with 40% bonds. The simulators and folks I've seen say this is more to reduce downside risk from low 40% to low 20% range during major events. Especially for sequence of returns risk scenario. Wish I had saved more outside a 401k.

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Here's the thing. You don't know when a major event will happen and going unnecessarily heavy on bonds causes you to miss out on a lot of returns when the market is fine (which is most of the time). It's why I like the 5 year anticipated net distribution view that is designed to allow you to absorb and outlast the downturns. Now for some, that may be 40% bonds/fixed. For others, it might only be 10%. Very much dependent on factors like (1) what other sources of income you have for that 5 years, (2) anticipated expenses, and (3) the size of your portfolio.

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This is very accurate. Does whoever gave you the advice know your full financial picture? Simple additional factors such as (1) Do you own your home free and clear, and (2) Do you have significant pension income upon retirement; can drastically change your appropriate allocation.

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Good point on the house. I had that bucketed as self insurance for long term care but I guess it could to some degree double up

I bleed maroon said:

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DannyDuberstein said:

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AgOutsideAustin said:

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I'm getting closer to retirement now and I've been told I need to dial back stocks and get to closer to a 60/40 mix with 40% bonds. The simulators and folks I've seen say this is more to reduce downside risk from low 40% to low 20% range during major events. Especially for sequence of returns risk scenario. Wish I had saved more outside a 401k.

---

Here's the thing. You don't know when a major event will happen and going unnecessarily heavy on bonds causes you to miss out on a lot of returns when the market is fine (which is most of the time). It's why I like the 5 year anticipated net distribution view that is designed to allow you to absorb and outlast the downturns. Now for some, that may be 40% bonds/fixed. For others, it might only be 10%. Very much dependent on factors like (1) what other sources of income you have for that 5 years, (2) anticipated expenses, and (3) the size of your portfolio.

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This is very accurate. Does whoever gave you the advice know your full financial picture? Simple additional factors such as (1) Do you own your home free and clear, and (2) Do you have significant pension income upon retirement; can drastically change your appropriate allocation.

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Yes they know my full picture, yes I own my home free and clear, no pension but a decent amount put back so limiting downside risk is appealing. Some inheritance will happen too. May not go the 40 but that was recommended.

The elephant in the room is that we are in unprecedented waters from an underlying fundamentals perspective. So a lot of the advice on here is fine assuming the backdrop was what it was 20+ years ago but it's not remotely the same.

So, we all just operate strategies ignoring the underlying house of cards. I admittedly have no idea how to play that reality other than to try and find assets and sectors you think will perform relatively the best (like Heineken has advocated) when this thing implodes.

And when it does we are all f'ed and there isn't terribly much you can do about it so I understand why we don't factor it. Advisors mostly ignore it just like we do because there isn't **** they can do about it. Goldman has recently and finally started at least mentioning the debt in their investment material but it's mostly just saying we have a problem and Congress will need to do something about it.

LOL. Congress isn't going to do anything about it.

Anyway, happy Saturday! Start Reed!

Definitely entering interesting times. My rational is that I'm mostly going to bet on 500 of the best companies in the world ultimately navigating thru whatever happens, and those that don't get churned out for those that are. Just have to be prepared to buy them time to do it.