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Edd

403B Bonds Or No Bonds

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Hello. I have read of this strategy by financial authors over the years. One of my teacher colleagues buys into it completely and I have never been sure which way to go. As a teacher in CA, I will have a pension when I retire. My friend, and those authors, say that the pension serves as the "conservative" protion of the portfolio, and thus the saved portion in the 403b should be the riskier stock portion. That is, in the 403b, my now retired teacher friend, and perhaps my portfolio, is 100% diversified stock funds with 0% in "conservative" bond allocation. My friend, and the authors, say to simply sell some shares when money is needed. When the tech bubble burst, my friend's portfolio dropped quite a bit, but then came back nicely. The same as with the 2008 bubble burst. Stay in, and the stock portion always comes back--and the pension will continue plugging away.

 

I am still accumulating and will not retire for 6-8 years. When I do retire, my 34 years in the California STRS system will provide for the pension.

 

I have always thought I should have some bond action, but regularly think that my friend, as a teacher with a pension, has the right formula

 

Any thoughts?

 

Thanks, Edd

 

 

 

 

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Edd

 

Defined benefit pensions could be considered a bond holding because it is a "guaranteed" payout if it is sound and there is little or no chance of default or reduction in payout. So in terms of using your 403b as a equity only allocation would make some sense if your 403b assets are correctly allocated to different asset classes.

 

Still, its important to realize that your 403b portfolio might be just as productive with a more balanced approach including bonds in the long run.. If the stock market dives (we may be heading towards another meltdown in 2015) would you be able to deal with a 50% reduction of all your hard earned money in your 403b? Would you be willing to wait five years or more to get your balance back? How would that impact your life if that account was suddenly untouchable because you would be losing money if you pulled any money out after a crash.

 

No thanks . I've been through two crashs and I am investing in bonds in my 403b/457 regardless of my pension status .

 

Tony

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Tony, what is your percentage strategy for bonds versus the stock portion of your 403b/457? Have you been adjusting according to your age and retirement year?

 

I am looking at my own strategy, hence my question on your strategy. Over the years since I began the 403b, I have much overweighted my stock portion and as I approach my retirement age, about 5-8 years, I have been increasing my bond portion. Then, when I read an author explain that stocks always come back and with less need for bonds in a retirement account--and think about my now retired teacher friend, I wonder how much in bonds I should actually have.

 

Thanks,

Edd

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Edd

 

The guy I believe in and trust is Jack Bogle. Read his books.

 

 

I am about 35% bonds and I am pushing hard to get to 40%. Its difficult in a rising stock market. However things can change rapidly. If I am correct bonds have actually outperformed stocks over the last ten years. So why would you not want to own some bonds too even if currently they are not doing well. Today's losers can be tomorrow's winners and thats why you should diversify. Slow and steady wins the race. Remember The tortoise and the hare story? You are best off being the Hare.

 

Seems to me you are not sure who or what to believe. I have been through that too . Now, I say ignore the noise and listen to Bogle. Amazon has plenty of his books.

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