Loss is an ambiguous condition. It only means something is worth less at one time relative to another time. But what are the times? You could buy BND for $10,000 last week, find that it is worth $9800 or something this week and if you wanted out $500 you would have to sell at a loss. On the other hand if you started investing in BND 30 years ago reinvesting the dividends your asset would be worth way more than you paid for it. Any fluctuation in the value like the last years or two would be of no consequence at all. My holdings in fixed income are worth more today than all times before March of 2022, so I have no idea what you would mean by a loss. That also means being "up" or "down" doesn't mean anything. There are hundreds of pairs of dates I could compare and some are up and some are down.I wonder what retirees have done to withdraw their fixed income from BND the past couple years to pay living expenses because BND has been getting crushed. Do those folks just sell at a loss?A year or so ago, I switched my VBTLX (same as BND) to VPAIX. A month ago I signed up with PAS and the advisor switched it all back to BND. I asked why and accepted his explanation, which I now forget! I'm guessing the "protection" wasn't considered worth the cost in lower dividends.What are people’s thoughts on total bond funds (BND) vs. TIPS (VAIPX)? My wife and I only use BND currently, but have both options available in our tax deferred accounts. I’m struggling if we should stick with BND only, migrate to all TIPS, or if we should also do a combination of both bond funds. We also have Dodge and Cox available but the ER is 0.41 which seems too high. Bond funds for some reason are confusing to us. Would it be better to buy individual bonds in taxable? We only have bond funds available in tax deferred.
Note that regular bonds already have expected inflation factored into their price. (Otherwise, who would buy them?!) I knew that already, thus my current suspicion of my motive. I think at the time I moved into TIPS I had probably fallen into the trap of "don't just sit there, do something."
The logical proforma process would be to take withdrawals and rebalance pretty much in one step. That means one does not withdraw "from" anything in particular. In the recent situation both stocks and bonds fell a lot but stocks have gained back value more than bonds have. Probably now a person would sell some stocks, take part of the proceeds as a withdrawal and buy bonds with the remainder. In the classic "when stocks are down" scenario a person would sell bonds, take part of the proceeds as a withdrawal and buy stocks with the remainder. Note "up" and "down" are now defined without ambiguity as being below or above the asset allocation target. If a person follows one of the variable withdrawal algorithms then if the total portfolio value goes down one would respond by withdrawing less while also keeping balanced to target. One could take that so far as to withdraw nothing if the portfolio is suffering enough, or ever make a contribution from other income and buy stocks and bonds. But, in general, yes, people sell things that have gone down all the time.
Note: I don't know what you mean by "withdraw fixed income." Here that term is a reference to an asset type that includes bonds and cash. Whether or not your withdrawals are fixed is up to you. In 17 years of retirement my annual withdrawals have ranged as a % of initial portfolio value from -1.8% (added money to the portfolio) to a high of 10.8% in a year. I can do what I want unless I try to follow some weird rule like spend only the dividends. So far the portfolio is up 47% over value at retirement after taking withdrawals. But that is because 17 years ago turns out to have been a good time to retire, at least with a balanced portfolio of stocks and bonds. And that is in spite of the financial crisis in 2008-2009 (so much for retiring into a market crash) and also the Covid crisis. We did not have to be so lucky, but it could have gone much worse and we would really be fine.
Statistics: Posted by dbr — Fri Jul 26, 2024 12:29 pm — Replies 3927 — Views 2490668