Outperforming equities is win-win, but not for the long haul. But to me, the real purpose of bonds is capital preservation, particularly as we get closer to retirement. (Holding bonds also enables one to rebalance the Asset Allocation once a year, but that is another story.)
100% equities at age 60 can be really risky unless you are Warren Buffett. In other words, could you sustain a 40% drop in the market (as happened in '08/'09) and still retire comfortably when your pool of wealth declines to 60% of what it once was?
OTOH, an asset allocation of say, 60% equities and 40% bonds, would only decline by ~24% with a 40% drop in stocks.
In the dark ages, income from bonds and dividend income from stocks was considered good retirement planning (by the FAās of the day). (My folks used to love those dividend checks.) But Finance 101 says to look at after tax returns, particularly for stock dividends.
We do plan to stay heavily in equities after age 60, as hopefully we wonāt have to draw down for awhile, since we still have pensions. I can see how people would be nervous watching the stock market go up and down, if they pay close attention to that. On the other hand, money market funds are paying more than most bond funds, with much lower risk right now, so Iād prefer to keep my safe money in that personally.
I wish my parents had listened to me almost 30 years ago when I said they needed to diversify out of 100% bonds into putting something in equities. I think they have done very little of that, ever. They have lived an extremely healthy life, so the odds are that they will live to a ripe old age. But fear of money, even looking at accounts, getting advice or thinking about it has stopped all that. Itās not that they feel that they have āenoughā, my Mom always sounds a little concerned and they live like they are impoverished (except for some rare splurges). Itās just fear.
The thing that got me started with the more expensive FA (a wealth manager at a big brokerage firm) was the suggestion that I could set up a defined benefit plan given my corporate structure. That enabled me to save $150K to $200K and more each year pre-tax. That did require a fair bit of work ā we needed an actuary to do some kind of report each year and then figuring out the best way of rolling it over to a 401k took some work when I was close to hitting the cap was also time-consuming. But on net, Iām confident that even with a 1% drag on returns and the professional fees, being able to save that much pre-tax was worth quite a bit.
Both do other things like remind me to make my charitable contributions from appreciated stock. I know I should do that, but at the end of year, I am likely to forget.
Iām not arguing that everyone should use and FA and I didnāt for years. However, I agree with @Happytimes2001 that for people without the time and/or inclination to pay attention to investments and tax-related concerns, working with a good FA makes sense. The only thing that I would say is that a lot of FAs are overpaid at 1% of assets for what they do, even for people who need the help.
Everyone, including me, always thinks residential. A lot of articles are behind pay walls, but Amazon, FedEx and the other businesses that support companies such as these are buying, building and/or leasing industrial space. Itās all about fulfillment centers and getting packages to you more quickly.
The one word isnāt āplasticsā anymore, itās industrial space.
IxnayBob just made me feel better. I have the same Vanguard funds, with Total Bond funds in the mix. All all Admiral, so,low fees. (Well, PeimeCap in sonās name, but I urge him to hold it)
@shawbridge You make a good point. FAās are often worth it for the self employed and those who own multiple businesses. They can talk to your CPA and sometimes have one on staff. Also, they know how to structure vehicles so if you have a windfall or have a lean year you have flexibility. Every quarter when I look at the fees and the earnings I reconsider. So far, it works for us. We donāt put them on auto-pilot but meet quarterly.
We attended a retirement planning 2 night class this year. The instructor is a financial planner (fudiciary) - we did like him and are contemplating setting up an account with him vs another option that allows fee-based initial planning while we judge their usefulness vs continuing to do our own financial.
The instructor highly recommended having real estate, such as a 4-plex rental, in the portfolio. (He suggested picking one the area towns less pricey than the Boulder CO site of the class). Weāre not game to do it, but he made some decent arguments.
Iāve only used a fee-only financial planner and it was a employee benefit of the agency who did the payroll and technically was my āemployer.ā It was interesting but I didnāt follow the recommendations she provided, but it did force H and I to think over our finances and plans to be sure we were on track. I have always been reluctant to pay anyone a % of our assetsāsomehow it seems too high of a price, especially since they collect whether you have net gain or net loss on your account.
@colorado_mom I always wanted rental property in the portfolio. Spouse said it was just more work and a part time job. In fact, now it wouldnāt help at all. With a high annual income the taxes would be absurd and real estate hasnāt really risen in a long time ( not to mention the property taxes have risen a lot) and the costs are high also. My SIL got trapped in a situation where all the retirement savings were in rental houses. Today, in her area the property taxes are so high she is barely making enough to pay the taxes and gets very little income. Plus her prices havenāt risen. I think a fourplex sounds better or even commercial where you can rent the space to a company ( and the value goes up and down with the economy). At this point, a vacation house that can be rented would probably be a better choice than a standard option. At least weād get some fun times.
Anyone here has plans for a daredevil hobby after retirement? A while ago Mr. B joked that he would learn to fly. Well, Mr. B told me that he āsold his airplaneā today. I almost choked on my tea. Whaaa? For a minute I thought he secretly bought one of those crop duster thing so. Apparently, it was a joke. He sold Boeing stock he had in his IRA. Donāt think he had enough $$ in it even for an aIrplane seat, maybe enough for an airplane toilet seat!
Maybe enough for a toilet seat in a commercial airplane, but if he had enough for a military aircraft toilet seat, well, heās going to be sitting pretty!
A while back, we had a private tour of the Boeing plant in Everett. They checked everyoneās passport and turned away all non-citizens in our student group. The guide walked us through the plane assembly areas and started giving examples of how much things costā¦ yeah, a toilet seat from a 737 sounds about right.
