Looking to start an initial allocation to bonds of 5% as more of a learning exercise before potentially increasing the allocation in future years. I'm 34yo with a ~25-30 year investment horizon and would keep this allocation in a T401K. I am reading past posts and articles and am stuck on how best to invest in bonds for the purpose I'm looking for.
I'm not looking for bonds to reduce volatility and serve as a psychological support during down markets. I have faith that I will buy into stock market dips/drawdowns... and know bonds will reduce long-term returns and want to avoid that as much as possible.
What I am looking for is a bond allocation that will be stable or up during the next stock market downturn to help rebalance into cheaper equities, understanding that has been the historical trend except for outlier 2022.
I can't decide on duration, nominal vs. inflation-protected, or fund vs. individual bonds
- Thinking either short-term (for stability) or long-term (for largest gain potential in a downturn)
- Thinking splitting between nominal and inflation-protected
- Thinking bond funds for simplicity
To that end, and looking at backtesting (while understanding the limitations and considering what a go-forward downturn/rate cutting vs. increase in inflation/rate hiking cycle could result in), I tested 2 potential approaches:
1) 50/50 TLT (iShares 20+ Year Treasury Bond ETF) / LTPZ (PIMCO 15+ Year US TIPS ETF)
>>matches my duration best
>>highest risk/reward for my rebalancing purposes
2) 50/50 SHV (iShares Short Treasury Bond ETF) / VTIP (Vanguard Short-Term Infl-Prot Secs ETF)
>>meant for shorter duration / horizons
>>really like the stability of it, but limited upside/downside
Please let me know your thoughts / what am I missing?
Intermediates seem to be the worst of both worlds to me for my purpose/duration... and played around with a short+long term mix, but
that just ends up being a complicated intermediate, but is there any logic behind mixing both with one being nominal and the other inflation protected?
Some backtesting because why not?![:)]( "Smile")
https://www.portfoliovisualizer.com/bac ... NNIaas6B6f
I'm not looking for bonds to reduce volatility and serve as a psychological support during down markets. I have faith that I will buy into stock market dips/drawdowns... and know bonds will reduce long-term returns and want to avoid that as much as possible.
What I am looking for is a bond allocation that will be stable or up during the next stock market downturn to help rebalance into cheaper equities, understanding that has been the historical trend except for outlier 2022.
I can't decide on duration, nominal vs. inflation-protected, or fund vs. individual bonds
- Thinking either short-term (for stability) or long-term (for largest gain potential in a downturn)
- Thinking splitting between nominal and inflation-protected
- Thinking bond funds for simplicity
To that end, and looking at backtesting (while understanding the limitations and considering what a go-forward downturn/rate cutting vs. increase in inflation/rate hiking cycle could result in), I tested 2 potential approaches:
1) 50/50 TLT (iShares 20+ Year Treasury Bond ETF) / LTPZ (PIMCO 15+ Year US TIPS ETF)
>>matches my duration best
>>highest risk/reward for my rebalancing purposes
2) 50/50 SHV (iShares Short Treasury Bond ETF) / VTIP (Vanguard Short-Term Infl-Prot Secs ETF)
>>meant for shorter duration / horizons
>>really like the stability of it, but limited upside/downside
Please let me know your thoughts / what am I missing?
Intermediates seem to be the worst of both worlds to me for my purpose/duration... and played around with a short+long term mix, but
that just ends up being a complicated intermediate, but is there any logic behind mixing both with one being nominal and the other inflation protected?
Some backtesting because why not?
https://www.portfoliovisualizer.com/bac ... NNIaas6B6f
Statistics: Posted by TextualChocolate — Sat Dec 28, 2024 11:45 am — Replies 7 — Views 169