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Post by acksurf on Dec 22, 2020 23:27:43 GMT
Curious how people think about their portfolios and allocations. Particularly those who have largish short term-medium term needs. For example, mostly for work reasons I moved and currently rent but might want to purchase something in the next few years; or it could be longer, depends on work. I also like to have $ available for Private Equity investments (I work in the industry peripherally and occasionally have access to some interesting private investments).
So, when people say my portfolio is 70/30 (or whatever) are they generally adding up every investment they have or are people subtracting out short term cash, bonds? Do people bucket for particular needs? For example, a $500K allocation for house purchase using an allocation 30% to SCHD and the rest munis (example only)? Do people bucket retirement $ separately?
I wish my portfolio was large enough to not have to think in buckets but it isn't as well as complicated by the fact that a fairly high % of the allocation is in illiquid private equity investments. Thoughts?
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Post by steadyeddy on Dec 23, 2020 1:18:26 GMT
Curious how people think about their portfolios and allocations. Particularly those who have largish short term-medium term needs. For example, mostly for work reasons I moved and currently rent but might want to purchase something in the next few years; or it could be longer, depends on work. I also like to have $ available for Private Equity investments (I work in the industry peripherally and occasionally have access to some interesting private investments).
So, when people say my portfolio is 70/30 (or whatever) are they generally adding up every investment they have or are people subtracting out short term cash, bonds? Do people bucket for particular needs? For example, a $500K allocation for house purchase using an allocation 30% to SCHD and the rest munis (example only)? Do people bucket retirement $ separately?
I wish my portfolio was large enough to not have to think in buckets but it isn't as well as complicated by the fact that a fairly high % of the allocation is in illiquid private equity investments. Thoughts?
First, fairly high % of investments in illiquid private equity investments? Unless you are a subject matter expert in private equity investments, this is not a good situation. Second, If I have cash meant to buy a house, I will not invest in the stock market. Third, retirement planning is about the whole portfolio... not pieces of it.
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Post by Chahta on Dec 23, 2020 1:33:24 GMT
Hi acksurf. I include everything because i like to see the entire picture on one page. Short term, mid term and long term needs in 1 portfolio. But I do not allocate to those needs. Cash is short term but the rest is simply equities and bonds allocated.
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Post by acksurf on Dec 23, 2020 14:56:55 GMT
Curious how people think about their portfolios and allocations. Particularly those who have largish short term-medium term needs. For example, mostly for work reasons I moved and currently rent but might want to purchase something in the next few years; or it could be longer, depends on work. I also like to have $ available for Private Equity investments (I work in the industry peripherally and occasionally have access to some interesting private investments).
So, when people say my portfolio is 70/30 (or whatever) are they generally adding up every investment they have or are people subtracting out short term cash, bonds? Do people bucket for particular needs? For example, a $500K allocation for house purchase using an allocation 30% to SCHD and the rest munis (example only)? Do people bucket retirement $ separately?
I wish my portfolio was large enough to not have to think in buckets but it isn't as well as complicated by the fact that a fairly high % of the allocation is in illiquid private equity investments. Thoughts?
First, fairly high % of investments in illiquid private equity investments? Unless you are a subject matter expert in private equity investments, this is not a good situation. Second, If I have cash meant to buy a house, I will not invest in the stock market. Third, retirement planning is about the whole portfolio... not pieces of it. LOL - thanks for your concern but I have been directly involved in over 50 middle market transactions the last 5 years.
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Post by acksurf on Dec 23, 2020 16:18:10 GMT
Hi acksurf. I include everything because i like to see the entire picture on one page. Short term, mid term and long term needs in 1 portfolio. But I do not allocate to those needs. Cash is short term but the rest is simply equities and bonds allocated. thanks for your input
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Post by ignatz on Dec 23, 2020 19:38:47 GMT
I'm guessing, but I doubt if most investors think in "buckets" per se, regardless of portfolio size.
Social Security and pensions are another wrench in the works. Do you or don't you take more equity risk simply because you have the cushion of a pension/SS at some point in your life.
It's one thing to be "70/30" and another thing to be "70/30" when SS/pension covers say 60 percent of your normal expenses. And of course a third thing to be "70/30" when your net worth is 5 million rather than 500 thousand.
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Deleted
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Post by Deleted on Dec 23, 2020 20:43:06 GMT
I do not have pension. I do not consider SS, medicare and medicaid for long term retirement planning as I have (hopefully) 13 more years of working life. Once I get close to retirement or retired then I will look at it.
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galeno
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KISS & STC
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Post by galeno on Dec 24, 2020 1:28:43 GMT
Our port without counting our (non-USA) government pensions: 55/45. Counting our pensions: 46/54.
According to firecalc.com without pensions our 95% SWR = 3.7%. With the pensions = 4.7%.
Our AWR = 4.0%.
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Post by chang on Dec 24, 2020 3:20:51 GMT
Part of what you're asking (I think) is a very important issue that doesn't get enough attention: what exactly do we include in our "portfolio" for the purpose of risk assessment and asset allocation?
Some examples:
1. Social security. Suppose you are in your 40s or 50s, and you can reasonably expect to earn $2500/mo. from SS after age 65, 68 or whatever. That is the equivalent of owning $1.5 million in a vanilla bond fund that pays a 2% yield. (2% x $1,500,000 ÷ 12 = $2,500/month). Do you "pretend" that you have a $1,500,000 holding in BND (for example) as part of your asset allocation considerations?
2. Inheritances. Suppose you're an only child and you have one elderly parent with a large nest egg. Obviously nothing is certain, but perhaps you are pretty sure that you will inherit $X at some point in the future. Do you take this expected cash inheritance into account in your AA now?
I can list other examples, but you get the idea. I think AA is actually more complicated than just looking at what's sitting in your brokerage accounts. Other thoughts?
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Post by steadyeddy on Dec 24, 2020 18:05:30 GMT
Part of what you're asking (I think) is a very important issue that doesn't get enough attention: what exactly do we include in our "portfolio" for the purpose of risk assessment and asset allocation? Some examples: 1. Social security. Suppose you are in your 40s or 50s, and you can reasonably expect to earn $2500/mo. from SS after age 65, 68 or whatever. That is the equivalent of owning $1.5 million in a vanilla bond fund that pays a 2% yield. (2% x $1,500,000 ÷ 12 = $2,500/month). Do you "pretend" that you have a $1,500,000 holding in BND (for example) as part of your asset allocation considerations? 2. Inheritances. Suppose you're an only child and you have one elderly parent with a large nest egg. Obviously nothing is certain, but perhaps you are pretty sure that you will inherit $X at some point in the future. Do you take this expected cash inheritance into account in your AA now? I can list other examples, but you get the idea. I think AA is actually more complicated than just looking at what's sitting in your brokerage accounts. Other thoughts? I focus only on my brokerage accounts & bank cash instruments to determine/maintain my desired AA. I only look at SS to determine how much I need to withdraw from my portfolio; otherwise SS doesn't figure into my AA.
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Post by acksurf on Dec 26, 2020 15:20:49 GMT
Part of what you're asking (I think) is a very important issue that doesn't get enough attention: what exactly do we include in our "portfolio" for the purpose of risk assessment and asset allocation? Some examples: 1. Social security. Suppose you are in your 40s or 50s, and you can reasonably expect to earn $2500/mo. from SS after age 65, 68 or whatever. That is the equivalent of owning $1.5 million in a vanilla bond fund that pays a 2% yield. (2% x $1,500,000 ÷ 12 = $2,500/month). Do you "pretend" that you have a $1,500,000 holding in BND (for example) as part of your asset allocation considerations? 2. Inheritances. Suppose you're an only child and you have one elderly parent with a large nest egg. Obviously nothing is certain, but perhaps you are pretty sure that you will inherit $X at some point in the future. Do you take this expected cash inheritance into account in your AA now? I can list other examples, but you get the idea. I think AA is actually more complicated than just looking at what's sitting in your brokerage accounts. Other thoughts? Yes, I also bring it up because as you state above because people's circumstances are different so it's good to be aware of these differences when discussing on boards. Inheritance is a good example but guaranteed pensions and other sources of income not included in one's invest-able assets are another. That 90/10 allocation might not seem as risky if you have $10k/month coming from a solid pension plan.
For my purposes, I've decided to bucket into short term (0-5 year horizon) and longer term (5+ year horizon). I probably won't do this as I approach retirement but it's helpful for me now to keep investments straight in my head.
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Post by johntaylor on Apr 17, 2021 14:30:39 GMT
Depending on definitions of human capital, it could be included in allocation although I don't myself.
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Post by retiredat48 on Apr 18, 2021 4:31:43 GMT
Suggest investors keep their "portfolio" on the simple side of stocks (and funds), bonds (and funds) and cash. This is really an "investment portfolio." The primary reason is you do not want to clutter up what is a tough task anyway. Some comments: --Keep your house/home(s) out of the "investment portfolio." --Keep real estate rental properties owned, out of your portfolio. These are general stand-alone investments that are not that relevant to stock and bond fluctuations. The net income in retirement, if owned, is simply subtracted from total income needs, to arrive at a portfolio Safe Withdrawal Rate. --Keep Soc. Security out of the portfolio...do not consider it a bond-equivalent. You control nothing...you can't buy or sell along the way. You simply are aware each year of the accumulated expected income, which again in retirement you simply subtract from your spending needs, to arrive at portfolio withdrawal needs. BTW what duration (or maturity) would you put on your "SS Bond"--I hope not a short term one!! --Similarly, keep annuities out of your portfolio. --Keep physically possessed gold/silver out of your portfolio. Similarly, most investors are never selling such assets. Most do not want to highlight such ownership anyway. --Yes, to a certain degree but don't overdue it...bucket or be aware of the few of life's major expenses, such as down payment for a home...and paying college costs. You may asset allocate some of this money into, for example, shorter term bond funds as you approach the need-for-money date. --Do keep your IRAs and 401.Ks and similar plans in your overall portfolio. --Yes, you can be aware of inheritances. I would partly account for this in your asset allocation...but you can't do much until received. I have a 101 y/o MIL invested in CDs, MM Funds and short term Treasuries. So while that may be partly coming someday, we hope life continues. She still insists on a twenty year SWR outlook, BTW! Final note: you can keep a separate accounting or list showing ALL your ownership assets if you like (I did for decades, using 31 December as the valuation date). (I did not keep autos and home furnishings in this list of assets) But no need to consider some assets, as outlined above, in your "investment portfolio." R48 Edit to add: --Do not keep your NFT memorabilia/art purchases in your portfolio. Like, I do not keep my recent $69 million purchase of Beeple digital artwork, in my portfolio.
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Post by acksurf on Apr 19, 2021 0:54:25 GMT
R48 - Thanks that's helpful to keep things straight! I appreciate your posts.
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Post by retiredat48 on Apr 19, 2021 14:58:50 GMT
R48 - Thanks that's helpful to keep things straight! I appreciate your posts. Thanks acksurf...glad if I helped. R48
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Post by Mustang on Apr 21, 2021 22:37:15 GMT
I agree that one should keep their portfolio straight forward - stocks, bonds, cash. I have selected an asset allocation based upon the research of experts: Bengen, the Trinty Study, and others. From their research the best long-term performing portfolios have between 75% and 50% stock. I do not include my house, cars and other investments.
I also consider volatility. We don't want to be withdrawing when the market is at the bottom. If you are planning to use a fixed withdrawal strategy then you need at least two funds. One to draw from when the market is good and one to draw from when the market is bad. That was the original purpose of a stock/bond asset allocation. But there are other ways. I'm planning of doing this with a moderate-allocation fund and a conservative allocation fund. The combined asset allocation of the two funds is approximately 50/50. In another part of our portfolio (traditional IRAs) we plan on using a dynamic withdrawal strategy. I have picked one moderate-allocation fund which has an asset allocation approximately 65/35.
The best way to calculate how much you need to withdraw is to create a budget the subtract stable income sources like pensions and social security. The shortfall needs to come from investments. Then determine how much of the budget is fixed and how much is discretionary. Fixed budget shortfalls need to be covered by a fixed withdrawal method (I'm using Bengen's 4% Rule). Discretionary spending can then be covered by a dynamic withdrawal method which will provide more income when the market is good and less income when the market is bad. According to researcher less than planned occurs around 48% of the time, 45% if you use ceilings and floors.
Remember: A plan is only good until first contact with the enemy. The future is uncertain. Once implemented you may have to adapt and improvise.
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Post by johntaylor on Apr 23, 2021 14:47:18 GMT
Would be interesting if somebody did have a thread on art.
Absent serious value, probably shouldn't be in portfolio but a fun topic (wife collects stuff like Gantner).
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Post by richardsok on Apr 23, 2021 19:41:11 GMT
Funny you mention art, John. My wife and I are still down here in Florida, in the house we bought about year ago -- with naked walls and no furniture. Nothing. (We've been accumulating slowly.) I just bought my first piece of art down here two weeks ago; am framing it myself. We'll be back up in Pennsylvania in a couple of weeks and if no one starts an Art thread, I will then when I have things to show. Don't know why I don't have photos of everything in Pennsylvania on me, but it's easily remedied.
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Post by johntaylor on Apr 24, 2021 14:35:56 GMT
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Post by retiredat48 on Apr 24, 2021 17:05:27 GMT
My wife's entry is a personal painting of a Clown, done by performer Red Skelton, specifically for my wife. (They were good buddies). He signed it "Dearest Susan". His paintings command very high prices (google Red Skelton Clown paintings). Priceless to us. My NFT entry is also framed, hanging on the wall, which reads: "Congratulations _____R48________on retiring at age 48, using Vanguard philosophies and techniques." Signed: John Bogle (Vanguard founder). Priceless to me. R48
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Post by johntaylor on Apr 24, 2021 22:31:35 GMT
Very cool items.
The gunfighter in "Shane" had a ranch in CA, but we went to his PA farm, got one of his, and one from his kitchen wall by Xavier Cugat.
"On October 12-13-14, 2006, one of the finest collections of art and antiques ever offered will be offered for sale at auction. This amazing collection belongs to actor and legend Jack Palance. The event will be held at Palance's historic Holly-Brooke Farm. Palance, an Academy Award-winning actor, is best known to modern movie audiences as Curly in the City Slickers movies. In 1992, he received an Academy Award. His career has spanned a half century. Jack is a passionate and diverse collector, amassing a huge eclectic collection of art and antiques during his travels worldwide..."
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Post by win1177 on Apr 26, 2021 14:58:25 GMT
Curious how people think about their portfolios and allocations. Particularly those who have largish short term-medium term needs. For example, mostly for work reasons I moved and currently rent but might want to purchase something in the next few years; or it could be longer, depends on work. I also like to have $ available for Private Equity investments (I work in the industry peripherally and occasionally have access to some interesting private investments).
So, when people say my portfolio is 70/30 (or whatever) are they generally adding up every investment they have or are people subtracting out short term cash, bonds? Do people bucket for particular needs? For example, a $500K allocation for house purchase using an allocation 30% to SCHD and the rest munis (example only)? Do people bucket retirement $ separately?
I wish my portfolio was large enough to not have to think in buckets but it isn't as well as complicated by the fact that a fairly high % of the allocation is in illiquid private equity investments. Thoughts?
Acksurf, This is my very FIRST post on this site, so here goes. I’m 62, planning to retire at the end of this year. Always been pretty aggressive as far as investing, huge saver, so have accumulated a large portfolio (well above our needs). So in many ways I am now investing a significant portion of it for our heirs/ charity, etc. We are currently about 84% equity, 5% bonds, 11% cash. This is all in our investment accounts, so it does NOT include cash we will plan on using in the short term, or our “emergency funds”. We normally keep about 3-4 months living expenses in a money market fund connected to our joint checking account, as “emergency fund”. But right now, we have MUCH more in that account, because we just sold our old home and we are holding cash in the MM account to buy a new car for wife, new (used) truck for me, as well as a new pontoon boat. For our new Lake House. So have an additional ~120K in there. But I do NOT count that as “cash”, as in my mind it is “spent money”. I normally hold less cash, but I’m slowly moving that cash into bond funds, hoping to have around 10-15% in bonds when I retire. Also, Both my wife and I will have SS, and I will have a pension, which combined should cover ~50% of expenses easily. So we should be fine, we are in essence investing a portion for our heirs. Win
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Post by retiredat48 on Apr 26, 2021 15:08:33 GMT
Hi Win...longtime, no talk!
I like your rationale, and your portfolio allocation...and plan to retire early!
R48
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Post by win1177 on Apr 26, 2021 15:20:25 GMT
Thanks Retired at 48! Yes, first time on this site. Been using Morningstar (still?), as well as Armchairinvesting. Some will criticize my lack of bond allocation, but when you look at the size of our portfolio it’s still a large amount in bonds. I just have to “ignore” the volatility, when the portfolio goes up or down 100K- 200K.
Win
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Post by anitya on Apr 26, 2021 18:38:45 GMT
Thanks Retired at 48! Yes, first time on this site. Been using Morningstar (still?), as well as Armchairinvesting. Some will criticize my lack of bond allocation, but when you look at the size of our portfolio it’s still a large amount in bonds. I just have to “ignore” the volatility, when the portfolio goes up or down 100K- 200K. Win What I am going to say is probably controversial and R48 will likely object to it - I do not have social security or pension but if I did I would consider social security and pension as fixed income, probably more fixed income than returns from bonds - the so called fixed income. From a portfolio point of view, I would convert income from those two sources into a principal amount and add that principal to my portfolio to look at my portfolio volatility.
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Post by yogibearbull on Apr 26, 2021 18:52:42 GMT
Income-gap approach is a better way to handle income streams from pensions, annuities, Social Security. Figure out the income-gap from the difference of the expected expenses and total income stream, and manage the retirement portfolio for that income-gap.
What about when income-gap is negative? Well, then do as one did during the accumulation/earning years when income-gap was also negative.
Present-value of income stream is a phantom and fluctuating amount and most cannot be realized or reallocated. For most individual investors it may lead to very equity-heavy portfolios that they may regret during market downturns. Bogle advocated this although many Bogleheads didn't follow that particular advice. For large multimillion dollar portfolio, it doesn't matter.
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Post by anitya on Apr 26, 2021 19:39:01 GMT
"Present-value of income stream is a phantom and fluctuating amount and most cannot be realized or reallocated" - Completely Agree.
Win evidently has a multi-million dollar portfolio, given $100-200K changes in portfolio balances comment, and presumably their family will not have to rely on that PV.
My suggestion for PV of income stream is for purposes of looking at portfolio volatility - I am still trying to figured out the right reaction to my own portfolio volatility. There are days when I question if I am not overreacting. Though I did not sell out in 2020, I may have done better (increased equities / risk more) if I was not looking at my portfolio volatility. I think we obsess a bit too much about volatility (or may be about all perceived fears). I am not sure all SD is real risk. May be risk should be measured only in terms of ability to meet needs but most of us do not seem to behave that way. May be because we hear fear so much. I am just thinking out loud - do not have concrete solutions. I wish people smarter than I am talk more about this.
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Post by retiredat48 on Apr 27, 2021 2:35:43 GMT
"Present-value of income stream is a phantom and fluctuating amount and most cannot be realized or reallocated" - Completely Agree. Win evidently has a multi-million dollar portfolio, given $100-200K changes in portfolio balances comment, and presumably their family will not have to rely on that PV. My suggestion for PV of income stream is for purposes of looking at portfolio volatility - I am still trying to figured out the right reaction to my own portfolio volatility. There are days when I question if I am not overreacting. Though I did not sell out in 2020, I may have done better (increased equities / risk more) if I was not looking at my portfolio volatility. I think we obsess a bit too much about volatility (or may be about all perceived fears). I am not sure all SD is real risk. May be risk should be measured only in terms of ability to meet needs but most of us do not seem to behave that way. May be because we hear fear so much. I am just thinking out loud - do not have concrete solutions. I wish people smarter than I am talk more about this. I agree with you here, anitya. It has simply evolved that people are using volatility to show "max drawdown", and thus some highly increased risk. Yet, bear markets have always been with us. Why the big deal?...you simply wait it out. I've gone thru many, 1974 the first one. I find investing for me is very easy during a bear market. My mantra is...I will do lots of repositioning, mitigating the impending storm...etc, until the market is down 20% or more from peak (an official bear market point). Then, I SIMPLY BUTTON DOWN THE HATCHES...AND WAIT...no buying or selling. Simple...but effective. And I start planning what to buy on the eventual upside. R48
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Post by chang on Apr 27, 2021 2:37:21 GMT
What I am going to say is probably controversial and R48 will likely object to it - I do not have social security or pension but if I did I would consider social security and pension as fixed income, probably more fixed income than returns from bonds - the so called fixed income. From a portfolio point of view, I would convert income from those two sources into a principal amount and add that principal to my portfolio to look at my portfolio volatility. I agree. This was the essence of my post on what non-brokerage assets or hypothetical assets to include in your AA, here: big-bang-investors.proboards.com/thread/210/uncertainties-figuring-aaR48 was "Mr. No" there, and while I understand his POV, I still believe major income sources (like SS) should be worked into your AA so that the other assets complement it, rather than ignore it. Yogi's income gap approach might do that, but I don't like pure income-oriented strategies, as I believe you end up overly focused on yield instead of TR, and might unintentionally add risk to your portfolio (e.g., HY junky stocks and bonds).
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Post by retiredat48 on Apr 27, 2021 2:39:15 GMT
Income-gap approach is a better way to handle income streams from pensions, annuities, Social Security. Figure out the income-gap from the difference of the expected expenses and total income stream, and manage the retirement portfolio for that income-gap. What about when income-gap is negative? Well, then do as one did during the accumulation/earning years when income-gap was also negative. Present-value of income stream is a phantom and fluctuating amount and most cannot be realized or reallocated. For most individual investors it may lead to very equity-heavy portfolios that they may regret during market downturns. Bogle advocated this although many Bogleheads didn't follow that particular advice. For large multimillion dollar portfolio, it doesn't matter. You are right, anitya, I disagree with you, and agree with yogi here. Again, I hope you (anitya) do not make that bond fund equivalent of SS, a short duration one!! KISS it; keep SS out of your investment portfolio. R48
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