In the video I use BND, which is a Vanguard intermediate term etf. One could also use a combination of BND and a TIPS fund, as I've described in the past. One could also add a short-term treasury fund or mutual fund (or savings account) to slowly fill up as the time for needing the money approaches.
i think people would benefit from not setting dates to their house buying goals. by being flexible and patient they can be fully investing in equities. strike when the iron is hot and be happy to ride out a downturn. renting is fine and they'll do better long term being all in. it's how i always did it and worked well for me. takes a certain mindset though i guess. i was not obsessed with house buying, i was happy to wait for the right moment. so the problem of what to do with money i need in the short term was never an issue. i changed my life plan to not need the cash short term.
Bonds have overperformed since the early 80s, that party is over. I don’t know that there’s any better way to analyze this than what you did, but I’d be very careful about projecting that bonds are going to be a positive investment going forward.
An interesting study would be to compare the gain/loss of the stock allocation with the price of real estate. If you were saving for a house in the stock market during 2008 your stock portfolio would have lost 50% but the value of the home you were going to buy also dropped by 50%.
Rob, thank you for another gem of a video. This is actually very relevant and useful for many of us who are struggling where to park our liquid funds for some relatively safe growth. My wife and I were literally talking about this subject this morning. Please keep up the great work :)
Rob, I really like this video and find it useful, In fact, your channel is among the most useful I watch. However, I disagree about your "bad news" after 2 years. You are correct that the remaining 3 years will act like a 3-year portfolio, but your starting point for the 3 years should be (on average) about 18% above where you began the 5 years. You would have to lose all your gains plus more to post an overall loss. That is not the same as looking at a 3-year portfolio risk.
Thanks, this helped me greatly. I am about 6.5 years out from from needing money for education. Can take some risk. I'm going to make a glide path using this concept.
Another great video Rob! One additional factor to think about is if you're flexible on when you use the savings or if it's relatively fixed. If it's for upgrading something that you already have that works (e.g. house, car, etc.) then the risks of market volatility can be better managed by adjusting the timing of using the funds.
Love your videos. I am not sure of the need to rebalance within the 5 years. This would only be needed if you care about drawdown within the 5 years. If however, you are only interested in the final sum after 5 years, I think you can keep the 50% asset allocation throughout the 5 year period and you would not increase the risk of a loss after the 5 years are up. Thanks again for very insightful videos.
Hi Rob. Love what you do, but I am not sure I agree with your thought process on your "need the money in 5/4/3 years" discussion. While I agree that the portfolio can go down when you have 3 years left, you likely made money in those first two years. As a result the total return for the 5 years period would be positive (based on past performance in the market of course.) You can certainly make changes to your mix, but I am much more of the mindset that you just set your plan and avoid looking at it to help prevent you from making emotional decisions.
Great video! This is a concept I’ve been toying around with in my head and you presented it very succinctly. Of course rebalancing is assumed in these scenarios to maintain your determined AA. That being said, in a taxable account would you limit yourself to rebalancing only once a year to avoid short term capital gains taxes? I guess the scenario in which you would be dealing with potential short term capital gains tax is if stocks did amazing one particular year and you have the urgency to adjust AA before the end of the year (for whatever reason). All other scenarios should be fine. If stocks crash and you would be shifting money from bonds to stocks you are unlikely to have much capital gain, if any, from your bond fund. Thanks Rob.
I have subscribed recently to your channel (a few weeks ago) and love it! I have watched a LOT of your videos already. I should be retiring within the next 6 months and I will likely be doing the 3 fund portfolio you have talked about thru Fidelity. But the confusion I have is that with both traditional and Roth IRA's (2/3rds in Roth and 1/3rd in traditional) how do you split the 3 fund portfolio up?? Do you do the 3 three funds with the same percentages for both IRA's separately? I Am not sure the best way to send this type of question to you, the only other place that mentioned your email was for "business" purposes, so did not want to abuse that.. I work so am not able to attend your live interactive lectures.. I will when I am retired! I also would like more information about how exactly to take money out once you have retired, it seems pretty confusing!
Do NOT use HISTORICAL results to evaluate bonds!!! It is NEVER appropriate. You MUST use CURRENT interest rates to evaluate bonds. Bonds have contractual and mathematical returns so there is NO reason to use outdated numbers and today especially there is every reason to AVOID using outdated numbers. Current interest rates are at historic lows. When interest rates rise, current bonds lose value. This is a mathematical fact. Will interest rates rise over the next 5 years? Your guess is as good as mine. My guess is they will, which will cause bonds to lose value. The longer the term of the bond the more value is lost when rates increase. So if you need money in 5 years, stay with bonds that mature in around 5 years. Do not pay a premium for those bonds... Personally my cash is in bank CDs and treasury I-Bonds (limit $10k/year/person) which have a relatively phenomenal rate right now due to inflation. Any projection of bond returns based on history is misleading to such an extreme it borders on fraud.
It seems like the issue of taxes and the cost of changing your allocations in a brokerage account isn’t really accounted for. I know you briefly mentioned it at the end but I would worry about that, any comments in regards to that?
I'm glad you mentioned BND, my go to bond ETF. Well, its been negative for me lately! In the process of converting at least 50% to a TIPs ETF, SCHP. Its has outperformed BND over the last 1 and 2 year time frames. Portfolio visualizer shows BND in the red YTD!
Thanks for the insights; was wondering what your thoughts on having an annuity and 401k at the same were/ better to combine? Thanks and have a good one
It would make sense to allocate at least $20K year to I-Bond as a couple even with the potential loss of 3-month interest if the home purchase time horizon is five year.
Great video. Could you make a video about technical advice (what brokers to choose or taxation) for non US citizens who want to passive invest? That would be awesome.
Hi Mr. Berger, I love your channel! Thank you so much for providing such informative content. I have a question that I can’t seem to find an answer for on other blogs and financial sites. How can someone live off of their investments if they hit financial independence before the age of 55 and they have their money tied-up in a 401(k) or a Roth IRA? Is it possible to draw down from these accounts earlier (than the rule of 55) if FI is achieved at say age 50? Thanks in advance 🙏
This maybe relevant in the 90s but have you looked at what Bond funds are doing recently in the negative return s...I would diversify in dividend ETFs, REITs, and even in some Crypto stablecoin savings account
I think it's a solid very conservative balanced fund. The bigger question is what role it serves in an overall portfolio. I find it easier to avoid balanced funds. Makes asset allocation more manageable, IMO.
Hey there thanks for the videos (subscribed!) Can you do a video on 529s? I have multiple children of varying ages, and wonder your thoughts on “super funding”. Specifically, if debt free, would you drop 150k in one account in a single year (then cannot contribute for 5 years) or DCA 30k/yr (max for an annual contribution for married couple) for 5 years? Also how to prioritize contribution amounts of multiple children of other ages (i.e weighted contributions for older children since less time to grow?) thanks!
Hi Rob- Thanks for another great video and getting the mouse wheel turning after three cups of coffee. I was wondering about a 50/50 mutual fund like VTMFX instead of a 50/50 portfolio w/ VTI and BND. Even though historical performance isn't quite as good and expense ratio is a little more, I was thinking maybe, just maybe... VTMFX might come out slightly ahead since the bond portion of the fund has municipal bonds which are exempt from federal and some state taxes? Anyways, on to the 4th cup...
Hi Rob I am new to your channel and I am verify thankful for your content! I was wondering your thoughts on what I should do with my rollover IRA. I do not really see the benefits of it and was wondering on your thoughts of what I should do with it. In the meantime I am just going to treat it like another retirement account.
Have you ever looked into things like stable coins? They are pegged to the dollar and don't fluctuate in value, but at places like blockfi you can get up to 9% interest for holding them. Seems like a safe high yield place to store some cash, but I was curious if you have heard of them, and if so do you know what kind of risks may be involved that I'm not seeing?
Could you do ap video about investing in hard assets? I'm one of the crazy people who worry about the US defaulting on our national debt, after which the USD won't be worth the paper it's printed on.
Great video, thank you! Because of the current and future interest rate situation and the effects on bonds, what would you think of allocating say half of your 50% bond portfolio to some of those ETF s that write calls or collars around the indices? (Still leaving the other 50% of capital in VTI) Unfortunately they haven’t been around for long except for QYLD so there isn’t enough historical data. But they do not move with the interest rate and they offer hi yields. A 50/50 of bonds and those ETFs would raise your yield to 6+ % Your thoughts? Thanks again!!!
Buys 10k in I Bonds for yourself and 10k for your spouse now in 2021. Do it again in January 2022. I Bonds are like buying a rolling 6 month CD IRA with the rate tied to the CPI inflation rate. You are guaranteed your principal. Can get you money back anytime after 1 year. From year 1 to year 5 there is a penalty for redemption of the last 3 months of interest. Right now, imho this is the best deal in your long term emergency cash bucket, or for a retiree / near retiree a great place for their 1+ year cash bucket.
Rob - you are great pure and simple! - I am commenting not on this particular video of yours but on past ones- at the moment I’m looking at the one “The case for adding gold to your investment portfolio” I am retired and I invest in the golden butterfly portfolio 👐
As a Brit viewing your site,do you think the 50/50 % portfolio still holds good over a 5 year period, in an era of mass money printing? Surely quantatative easing has to be unwound somehow?
I thought that right now due to lose interest rates buying bonds is too risky, anytime the central banks decide to increase interests , bond will loose value. And in an inflationary environment an increase on interest rates may be needed. Even in this situation do you think is safer to have 50% in bonds?
Wait a moment, you can't look at the average return over a 3-yr basis if you've been already invested for 2 years. The potential loss over 3 years needs to be interpreted over the average appreciated value after the first 2 years of investments. If you factor that loss with the market movement over the 2 previous years, then the average will fall back in line with the 5-yr return .The principle of regression to the mean tells us that 3 years of Bear market increase the chance that the 2 years before must have been Bull, as the 5-yr average NEEDS to be positive (because the data tell us that). There's a correlation among consecutive years of investment that can't be ignored. That's exactly what the rolling return metric is there for...
Statistically, it's a bit misleading to say the last 3 years of a 5 year period are at a higher risk of loss, by showing the probability of loss of a 3 year total period. Those last 3 years of a 5 year total period were already baked in to the probability of the 5 year total period. It's an apples to oranges comparison. That said, if the first 2 of 5 years have treated you well, moving to bonds will lock in those gains. If the opposite happens, moving to bonds would just lock in those losses.
sir, with all due respect would you show us how you put your money for 5 years on a 50:50 portfolio? I would like to see that:))) I like how 1, 2, 3 to 5 percent loss to you is not a big deal in the short term :)) Is that video for real or you are mocking the current environment?
if you needed 100 thousand in 5 years and wanted take on more risk just put 50 thousand in the stock market and just leave 50 thousand in online savings like ally .50 and stay liquid ? there no free lunch
The 5 year Treaury is finally at 1.5% and CD rates may catch up if it stays there. With 7% inflation we are only losing 5.5% per year on the savings. Call me a cry baby but it seems like we should be able to loan money to either the government or to a bank and get at least the amount of inflation without taking any risk. But we can't so I'll shut up.
recommending people but their 5 year fund in a 50/50 portfolio is pretty much identical as recommending they only hold 2.5 years as cash, this video is pointless
