Haha was considering VAGU but a lot of people seem to think buying bonds before 40 is a mistake since you want to let equities do most of the heavy lifting when you're still able to take risks. Currently considering 100% VWRA on my IBKR as I slowly transition my other investments (FSMOne, SA, Bursa stocks etc...) over as they hopefully turn green. Unfortunately entered SA @ ATH so it'll be quite a long wait

If u go 100%, you must be mentally prepared to experience volatility, including something like a 30% or more fall in your portfolio. Most people can't handle that.

A lot of people also greatly overestimate their risk tolerance and haven't experienced a real bear market when they already have an significant amount invested. To stay the course over 3+ years of constant bear, unemployment stress, and everyone telling you THIS time it's different...

What bond to buy that are good? So far I see the bond ETFs not doing so well also. Might as well just continue DCA in good stocks or ETFs.

Me included. I’m waiting for a real crash to test my resolve. I tested StashAway’s thematic portfolio and also a UT with Ark Innovation’s funds and decided they're not for me when ARKK dropped 40-50% from my highest entry price. I’m still waiting to see my risk appetite when it comes to purely index fund volatility, although common sense seems to be that the swing should be smaller because of the total world nature of VWRA, but like I mentioned, we’ll see

I think you’re in the wrong thread if you’re asking which bonds are good. I used to want to know the same thing you’re asking, then I decided I didn’t want to spend that time and mental energy… The Boglehead approach asks you to buy an index that tracks the total bond market, something like VAGU. The bond’s role isn’t to chase performance but it’s to cushion your portfolio during tough times.

The swing could be smaller, but it still dropped about 30% in March 2020. VWRA doesn't have a long enough track record to extend to the GFC. But during the GFC, a similar strategy ETF like ACWI dropped about 50%.

This post has been edited by Cubalagi: Feb 12 2022, 01:04 PM

Mathematically and historically, obviously the younger you are it's more ideal to have more equities for maximum possibility of growth over the very long term.

Emotionally however, not everyone can handle the volatility of a high equities portfolio, as evidenced in the number of people who get sad at single digit dips in some platforms. Some people even more than -5% dip start to panic le and sell to realise loss.

So need to adjust your strategy to your risk appetite.

Yeah the emotions aspect is of course the age-old big question, of one’s risk tolerance. I don’t claim to fully know my limits either. One other way may be to increase bond exposure as I start to feel more uncertain? I’m honestly not sure if that’s counterproductive behavior or not yet.

Nice....EPF SSPN as bond like for Malaysian.....this thread is getting interesting

For those with 100/0 asset allocation or something like that, it would be good to consider extreme scenario where one is unemployed or under employed for a prolonged period due to macroeconomic shocks like 1929 great depression.

This post has been edited by alexkos: Feb 12 2022, 06:20 PM

Bogleheads will call that market timing, which is against their principles.

How is that market timing? More like risk balancing based on appetite changes?

And what makes your risk appetite change?

When growing older I suppose. That’s my main concern is after 40, how much to allocate in bonds. But seems like Malaysia has quite a few different options aside from bonds

Making decision on feeling and tinkering with your portfolio too often is detrimental more often than not.

Portfolio success rate are often much more fragile on investor behavior than whether it makes another 0.5% more than the other fund.

I wouldn't go to the extreme length of one of Bogle's anecdotes, where he recommended someone to just deposit and never peek until 30 years later.

But you should have a an investment policy statement, documenting what you hold, why you hold them (this is very important when you are tempted to switch to other asset), and under what conditions you are allowed to change them (e.g. net worth, age). Having it and having the discipline to follow through will prevent your "appetite changes" after a major loss affecting your portfolio.

If you allow yourself to switch assets and allocation at will, you are more likely to cause damage and decrease your portfolio success rate.

And, you need to review the conditions you've set for yourself too. "I'll increase my bond allocation when market feels uncertain" is a rather poor reason in my opinion. Your asset allocation should be based on something more fundamental, like "If another 2008 happen, I do not believe I can endure an extended 30% drawdown. I can stomach 15% drawdown at best and according to portfolio backtester, that meant (sample number) having 40% in bonds".

Then perhaps you would have a clause that "I will only allow once allocation change per year when the decision is well reviewed and at least 3 months has passed since the decision is made and it remains logically sound".

Finally, you execute the change while rebalancing your portfolio on such dates to save on fees and hit multiple bird with one stone.

At least, that's what I do myself and I am interested to receive opinions on that thought process.

This post has been edited by Hoshiyuu: Feb 12 2022, 11:04 PM

Ok. Changing portfolio allocation as you age is not market timing.

I mentioned earlier that those alternative bond options lack the capital gain feature of bond funds. This s what you need to reduce portfolio volatility.

This post has been edited by Cubalagi: Feb 12 2022, 11:04 PM

Oh ok I think there’s some misunderstanding. If you read back my previous message that mentioned the word “uncertain’ I meant my asset allocation, not market conditions not trying to time the market or ride some wave, but merely that if say one day I get to 40 and I no longer feel like I could stomach 100% equity, I was wondering if that’s the time when I should increase my bond allocation.

The rest of your post is incredibly well said, and is what I’ll strive to do too, although not as formal as having a statement, but maybe that’ll help in the long run too

Yeap I just noticed when I saw your reply to Cubalagi, my bad!

So means buying bonds is to reduce chance of drawdown for overall portfolio? Since I notice they don’t fluctuate much. While earning steady dividends at the same time?

I notice bond related still get taxed 30% on dividends if buy US domiciled. Need to hunt for Irish domiciled to reduce tax down to 15%

I’m in late 30s but feel I can stomach the risk. I set aside 2-3 months of my savings in case if anything happens. One day if I retired will definitely look into bonds.

It's not to reduce chance of drawdown, it's reducing the amount of drawdown when a bear market happens because bonds is a different asset class.
e.g. if you had portfolio A 100 Equities : 0 Bonds and portfolio and a 50 Equities : 50 Bonds portfolio, then when a 50% market drop happens, Portfolio A would lose 50% of its value but Portfolio B would only lose about 25% of its value, roughly.

A higher amount of equity will obviously bring you higher return, but the higher you go the more diminished is the reward-per-risk so to say. By having 10-20% in bond no matter how young you are helps reduce maximum portfolio drawdown and doubly serve as a balance mechanism to ensure you buy low, sell high.

My target bond is VAGU - Vanguard Global Aggregate Bd UCITS ETF USD Hgd Acc, which is Irish domicile, has only 15% witholding tax.

Side note, people often equate "risk tolerance" = "how far I can accept temporary losses". But in reality when a real, extended bear market happen, it quickly goes beyond "emotional tolerance" but become a physical problem of "how long I can survive without liquidating my equities at a loss" - and you don't know if its 3 days, 3 months, or 3 years. Most people barely have an emergency fund of 6 months of expense as it is.

This post has been edited by Hoshiyuu: Feb 13 2022, 01:40 AM

Those who would like to gauge their risk tolerance can go through a hypothetical scenario where the market declines x% by next year, while income is reduced by y% for z amount of time.

For example, 50% decline, 50% income reduction, 2 year duration.

This is to ensure that you have sufficient buffer in your emergency fund and fixed income combined before tapping into equity selling in worst case scenario.

Bogleheads had a few guys who had the influence of great depression 1929 (family asset wiped out, and they were in their early childhood). These were counted as real experience facing macroeconomic shocks and severe economic crisis.

Malmendier & Nagel (2011) had a paper tracking the risk taking behavior of these group of people. Overall, the experience was so painful leading to generations of conservative investing even after so many decades.

For Malaysian, perhaps some real experiences surrounding Asian financial crisis 1997 can provide a very good argument to young investors who need meaningful percentage of fixed income in their asset allocation.

This post has been edited by alexkos: Feb 13 2022, 09:47 AM