Would you choose bond or "real 3%" investment if you were me?

[Anonymous]

I’m another WB colleague near your age. I contribute 5% to the cash balance. I have 60% in the S&P, 40% in real 3%. I do another 10% to a Roth 401(k), all vanguard institutional index. I also have other IRAs in low-cost vanguard total stock funds. So all in all my real 3% allocation is less than 20% of my total retirement portfolio. But yes it’s a great bond replacement. And hopefully will be a nice buffer when stocks go down.

[Anonymous]

I’m so jealous you have that option.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:PP here - old thread, but relevant now as much as it was then (in case you just want to know the bottom line, they said the world bank real + 3 is just hard to beat, so go for it)

https://www.bogleheads.org/forum/viewtopic.php?t=156274

Thanks PP for finding this thread for me ! This is perfect. And yes to others who asked: it is the World Bank CPI+real 3% option, no fee, and it is probably subsidized/guaranteed by something else. i dont have much doubts that it is extremely safe.

I thik i am going to put 100% of my bond allocation into it. My only doubt now is whether 90% stocks/ 10% Real 3% makes sense.. Maybe the real 3% is so good I should do 80/20 or 70/30 instead? WWYD?

keep your allocation to 10%. split the remaining 90% between the S&P and Russel 2k - you want to take full advantage of the last 2 months of the year where the market traditionally rises. Keep an eye on the Fed decision regarding rates too. You can always [self] correct the allocation every month, you just need to pay attention to what's going on and the calendar (you have the adjust the allocation before the final day of the month in order for the changes to be reflected the very next month). So you've missed the opportunity to adjust for November but you can still adjust for December.

Thanks ! I did change it right before nov 1st to 10% to the real 3%. From all of what you are saying i am assuming you also work at the Bank? May i ask your age and allocation ? And how long you have been invested the way you are?

PP here (and also offered the clarifying post about the pension) - yes, I'm a fellow colleague and have been with the Bank for more than 22 years. I'm in the new plan and when I started, we could only contribute 5% of our salary instead of the current 11%. I was fortunate to have been able to make the additional contributions over 5 years during the "catch up period" that was part of the most recent pension reform. I just turned 50 last month and hold a pretty senior position in the Bank.

I would have to go back and check for the exact information on my history of allocations, but roughly, I was about 50-50 between the S&P and the Emerging Market Index for the first 3-4 years of my career. In the early to mid 2000s, I did switch over to roughly 50-50 S&P and Russell 2k, with the occasional 3% buffer (allocating to about 20% and bringing down the allocation in the Russell 2k). I certainly got hit during the 2008 great recession but I got out of the S&P in October and put it all in the 3% from Oct. '08 to about Feb/March '09. Since then I've been riding the S&P at 80-90% and a 10-20% in the Russell 2k. I have really benefitted from this long bull market for sure. Fellow colleagues (economists) seem not to have

I'm an active investor with pretty significant investment portfolios that we have outside the pension so I am constantly evaluating the allocation/investment elections every couple of months. I've been 100% in the S&P since mid 2020. This past August, I almost pulled back to allocate some into the 3%, but based on what i was reading (WSJ, Bloomberg, etc.) I chose to ride the small pullback to take advantage of the current market. I'm lucky/fortunate that I'm now in a position that I could conceivably leave in the next couple of years (w/o even drawing on the pension until I hit 62, so I could let it continue to grow without additional contributions). I will likely reevaluate the allocation towards the end of this year and I do draw on a number of [domestic] economic prospects/outlook reports produced by the larger banks and investment houses to help guide my thinking.

Hi PP I am the original poster and coming back to ask if you changed your allocation? I am still at 60% SP500; 20% Russell; 10% emerging market and 10% real 3%. Wondering how to reallocate given fed recent decision

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:PP here - old thread, but relevant now as much as it was then (in case you just want to know the bottom line, they said the world bank real + 3 is just hard to beat, so go for it)

https://www.bogleheads.org/forum/viewtopic.php?t=156274

Thanks PP for finding this thread for me ! This is perfect. And yes to others who asked: it is the World Bank CPI+real 3% option, no fee, and it is probably subsidized/guaranteed by something else. i dont have much doubts that it is extremely safe.

I thik i am going to put 100% of my bond allocation into it. My only doubt now is whether 90% stocks/ 10% Real 3% makes sense.. Maybe the real 3% is so good I should do 80/20 or 70/30 instead? WWYD?

keep your allocation to 10%. split the remaining 90% between the S&P and Russel 2k - you want to take full advantage of the last 2 months of the year where the market traditionally rises. Keep an eye on the Fed decision regarding rates too. You can always [self] correct the allocation every month, you just need to pay attention to what's going on and the calendar (you have the adjust the allocation before the final day of the month in order for the changes to be reflected the very next month). So you've missed the opportunity to adjust for November but you can still adjust for December.

Thanks ! I did change it right before nov 1st to 10% to the real 3%. From all of what you are saying i am assuming you also work at the Bank? May i ask your age and allocation ? And how long you have been invested the way you are?

PP here (and also offered the clarifying post about the pension) - yes, I'm a fellow colleague and have been with the Bank for more than 22 years. I'm in the new plan and when I started, we could only contribute 5% of our salary instead of the current 11%. I was fortunate to have been able to make the additional contributions over 5 years during the "catch up period" that was part of the most recent pension reform. I just turned 50 last month and hold a pretty senior position in the Bank.

I would have to go back and check for the exact information on my history of allocations, but roughly, I was about 50-50 between the S&P and the Emerging Market Index for the first 3-4 years of my career. In the early to mid 2000s, I did switch over to roughly 50-50 S&P and Russell 2k, with the occasional 3% buffer (allocating to about 20% and bringing down the allocation in the Russell 2k). I certainly got hit during the 2008 great recession but I got out of the S&P in October and put it all in the 3% from Oct. '08 to about Feb/March '09. Since then I've been riding the S&P at 80-90% and a 10-20% in the Russell 2k. I have really benefitted from this long bull market for sure. Fellow colleagues (economists) seem not to have

I'm an active investor with pretty significant investment portfolios that we have outside the pension so I am constantly evaluating the allocation/investment elections every couple of months. I've been 100% in the S&P since mid 2020. This past August, I almost pulled back to allocate some into the 3%, but based on what i was reading (WSJ, Bloomberg, etc.) I chose to ride the small pullback to take advantage of the current market. I'm lucky/fortunate that I'm now in a position that I could conceivably leave in the next couple of years (w/o even drawing on the pension until I hit 62, so I could let it continue to grow without additional contributions). I will likely reevaluate the allocation towards the end of this year and I do draw on a number of [domestic] economic prospects/outlook reports produced by the larger banks and investment houses to help guide my thinking.

Hi PP I am the original poster and coming back to ask if you changed your allocation? I am still at 60% SP500; 20% Russell; 10% emerging market and 10% real 3%. Wondering how to reallocate given fed recent decision

I'm the PP (fellow WB colleague) who responded to you - I changed my allocation at the end of this past Jan. to the 100% real 3% option (so I got out of the S&P). I did take a hit as the market dropped in Jan. (I really should have done the reallocation at the end of last Dec.) but it's fine as the real 3% is not too bad (translates to return of more than 10%) and I look at this from a longer term perspective - stave off the declines until the market settles and then get back into the S&P and possibly the Russell 2k. At this point in my career/life, I am not taking aggressive positions in the emerging markets (I'm over 50 so getting a little conservative with the pension and frankly I just don't have the time to be as on top of this as I would like as my job is just off-the-charts busy and I'm likely to a resume hectic mission travel very soon).

The recent rate hike, and the planned 5-6 additional hikes haven't changed my thinking yet. Waiting to see how the market reacts to future rate hikes and I need to read more about the bond options we have. Will likely stay put for the next few months though.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:PP here - old thread, but relevant now as much as it was then (in case you just want to know the bottom line, they said the world bank real + 3 is just hard to beat, so go for it)

https://www.bogleheads.org/forum/viewtopic.php?t=156274

Thanks PP for finding this thread for me ! This is perfect. And yes to others who asked: it is the World Bank CPI+real 3% option, no fee, and it is probably subsidized/guaranteed by something else. i dont have much doubts that it is extremely safe.

I thik i am going to put 100% of my bond allocation into it. My only doubt now is whether 90% stocks/ 10% Real 3% makes sense.. Maybe the real 3% is so good I should do 80/20 or 70/30 instead? WWYD?

keep your allocation to 10%. split the remaining 90% between the S&P and Russel 2k - you want to take full advantage of the last 2 months of the year where the market traditionally rises. Keep an eye on the Fed decision regarding rates too. You can always [self] correct the allocation every month, you just need to pay attention to what's going on and the calendar (you have the adjust the allocation before the final day of the month in order for the changes to be reflected the very next month). So you've missed the opportunity to adjust for November but you can still adjust for December.

Thanks ! I did change it right before nov 1st to 10% to the real 3%. From all of what you are saying i am assuming you also work at the Bank? May i ask your age and allocation ? And how long you have been invested the way you are?

PP here (and also offered the clarifying post about the pension) - yes, I'm a fellow colleague and have been with the Bank for more than 22 years. I'm in the new plan and when I started, we could only contribute 5% of our salary instead of the current 11%. I was fortunate to have been able to make the additional contributions over 5 years during the "catch up period" that was part of the most recent pension reform. I just turned 50 last month and hold a pretty senior position in the Bank.

I would have to go back and check for the exact information on my history of allocations, but roughly, I was about 50-50 between the S&P and the Emerging Market Index for the first 3-4 years of my career. In the early to mid 2000s, I did switch over to roughly 50-50 S&P and Russell 2k, with the occasional 3% buffer (allocating to about 20% and bringing down the allocation in the Russell 2k). I certainly got hit during the 2008 great recession but I got out of the S&P in October and put it all in the 3% from Oct. '08 to about Feb/March '09. Since then I've been riding the S&P at 80-90% and a 10-20% in the Russell 2k. I have really benefitted from this long bull market for sure. Fellow colleagues (economists) seem not to have

I'm an active investor with pretty significant investment portfolios that we have outside the pension so I am constantly evaluating the allocation/investment elections every couple of months. I've been 100% in the S&P since mid 2020. This past August, I almost pulled back to allocate some into the 3%, but based on what i was reading (WSJ, Bloomberg, etc.) I chose to ride the small pullback to take advantage of the current market. I'm lucky/fortunate that I'm now in a position that I could conceivably leave in the next couple of years (w/o even drawing on the pension until I hit 62, so I could let it continue to grow without additional contributions). I will likely reevaluate the allocation towards the end of this year and I do draw on a number of [domestic] economic prospects/outlook reports produced by the larger banks and investment houses to help guide my thinking.

Hi PP I am the original poster and coming back to ask if you changed your allocation? I am still at 60% SP500; 20% Russell; 10% emerging market and 10% real 3%. Wondering how to reallocate given fed recent decision

I'm the PP (fellow WB colleague) who responded to you - I changed my allocation at the end of this past Jan. to the 100% real 3% option (so I got out of the S&P). I did take a hit as the market dropped in Jan. (I really should have done the reallocation at the end of last Dec.) but it's fine as the real 3% is not too bad (translates to return of more than 10%) and I look at this from a longer term perspective - stave off the declines until the market settles and then get back into the S&P and possibly the Russell 2k. At this point in my career/life, I am not taking aggressive positions in the emerging markets (I'm over 50 so getting a little conservative with the pension and frankly I just don't have the time to be as on top of this as I would like as my job is just off-the-charts busy and I'm likely to a resume hectic mission travel very soon).

The recent rate hike, and the planned 5-6 additional hikes haven't changed my thinking yet. Waiting to see how the market reacts to future rate hikes and I need to read more about the bond options we have. Will likely stay put for the next few months though.

Thank you !!!

[Anonymous]

This thread was great to read, and I was wondering if you all could post an update on your portfolio allocation. Mine has been 100% real 3% since May but wondering if perhaps I should go back to SP500? Interested to hear what others are doing.

[Anonymous]

Hey WB colleague here: can someone help me understand what does the rebalance me? If I choose from 50% sp500 50% real 3% to 100% real 3%, what happens to the shares of sp500 I bought before? Will the existing shares keep growing? It's very confusing because when they rebalance, they say they rebalance the entire balance, not just the new purchase balance.

[Anonymous]

Anonymous wrote:Hey WB colleague here: can someone help me understand what does the rebalance me? If I choose from 50% sp500 50% real 3% to 100% real 3%, what happens to the shares of sp500 I bought before? Will the existing shares keep growing? It's very confusing because when they rebalance, they say they rebalance the entire balance, not just the new purchase balance.

They rebalance the whole thing = they sell everything and re-purchase. So basically, they sell your SP500 and buy real 3% with it. If you want to "keep what you bought in the past", you need to calculate what % that orignal investment would keep representing each month. Lets say you currently have 1000$ invested in SP500 and 1000 in real 3%, and you put 100$ in every month starting september, you need to choose for your sept allocation something like 47.5% SP500; 52.5% real 3%. And then in October 45% SP500, 55% real 3% etc...

I thought about it but it was too complicated. I just switched everything to real 3% at the time.

[Anonymous]

Anonymous wrote:This thread was great to read, and I was wondering if you all could post an update on your portfolio allocation. Mine has been 100% real 3% since May but wondering if perhaps I should go back to SP500? Interested to hear what others are doing.

OP here (not the 2 people who gave me good advice on this thread, hoping they come back too). I kept all at 100% real 3% for now, planning to keep it there until at least end of guaranteed 11.5% return (April 2023).

But I have also been maxing out the Roth 401K since last year, which doesnt have real 3%, so I am tempted to keep forever my pension at a high real 3% allocation (maybe 80 or 90%) and have the Roth 401K in more risky/rewarding stocks.

[Anonymous]

I’ve been 50/50 between real 3 and sp500. Obviously should have all in Sp500 until end of 2021, then all in real 3…. But who would have known? I’m also 100% in US equities in Roth 401k, 529, Roth IRA and maxing ibonds etc. I’m aiming 10+ years, so hopefully it will work out fine.

[Anonymous]

Another WB colleague here same age. I find this discussion very helpful and wanted to bump up the thread now in the light of the declining inflation. My portfolio is currently 50% sp500, 5% Russell 2k and the rest in real 3%. I have been wanting to increase my SP500 to rebalance the portfolio to at least 70% sp500. Any thoughts on this from those of you with more experience and also is this is a good time to increase allocation in sp500? Also, i see many here hold Russell 2k but it hasn't been doing well for a long time. Any thoughts on that? Thanks a lot.

[Anonymous]

Anonymous wrote:Another WB colleague here same age. I find this discussion very helpful and wanted to bump up the thread now in the light of the declining inflation. My portfolio is currently 50% sp500, 5% Russell 2k and the rest in real 3%. I have been wanting to increase my SP500 to rebalance the portfolio to at least 70% sp500. Any thoughts on this from those of you with more experience and also is this is a good time to increase allocation in sp500? Also, i see many here hold Russell 2k but it hasn't been doing well for a long time. Any thoughts on that? Thanks a lot.

Engaging in market timing is usually a bad idea, and your case qualifies as a bad idea. By the way, the russel 2000 is one of the worst small cap funds. Do you have any other small cap funds available to you? And what about international developed and emerging markets?

But you first need to decide how much risk (bonds) you want to take and stick with the plan unless you have a very good reason to change it.

[Anonymous]

At 40 you should be 100 percent in equities. You have a 29-30 year plus time horizon.

[Anonymous]

PP and fellow WB colleague - appreciate fellow WB colleagues bumping/reviving this thread.

What a difference that last few months have made as compared to this time last year (when I first responded to the OP). I jumped back into the S&P in March 2023 and was able to take advantage of the recent surge in the markets. I'm currently allocated at a 50-50 split between the S&P and Real 3% option. I'm 50+ years old, so I'm not trying to be as aggressive in my investment decisions as I was earlier in my career - there is way too much for me to potentially lose now vs. 20 years ago when we only had 1 infant child (now 2 are in college and the last will leave in a couple of years).

I would say to the OP (and any other fellow WBers) who are in their 30s and 40s, take advantage of the market returns in your youth. Sure you can hedge with the 3% to play it a little safe (say up to 20-25% of your allocation), but I would suggest that you look at this from a long term perspective. Unless you have sizeable outside investments, the market returns you can capitalize on now will just grow your portfolio at a compounded rate that the 3% simply cannot offer.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Another WB colleague here same age. I find this discussion very helpful and wanted to bump up the thread now in the light of the declining inflation. My portfolio is currently 50% sp500, 5% Russell 2k and the rest in real 3%. I have been wanting to increase my SP500 to rebalance the portfolio to at least 70% sp500. Any thoughts on this from those of you with more experience and also is this is a good time to increase allocation in sp500? Also, i see many here hold Russell 2k but it hasn't been doing well for a long time. Any thoughts on that? Thanks a lot.

Engaging in market timing is usually a bad idea, and your case qualifies as a bad idea. By the way, the russel 2000 is one of the worst small cap funds. Do you have any other small cap funds available to you? And what about international developed and emerging markets?

But you first need to decide how much risk (bonds) you want to take and stick with the plan unless you have a very good reason to change it.

you're correct that market timing is a terrible idea. but here is some recent data in terms of performance/returns this year (YTD) -

S&P - 16.9%
EAFE - 12.13%
R2K - 8.1%
all other options (including bonds, emerging markets, etc.) for cash allocations are 5% or below (except for the real 3%, which is based on the US CPI + 3%)

so R2K isn't terrible - it's the only option we have for small cap funds though