Bond Ladders in 2024: How to Build a Bond Portfolio for Your Retirement

[@jeffspon]

This is the clearest explanation I have ever heard on deciding how much one should hold in bonds and what type. Well done and THANK YOU!

[@Elephantine999]

Really smart guy and an excellent communicator.

[@mariastreit6815]

Best overview on this topic I've ever seen. Thanks, James!

[@AkweliParker]

Masterclass, James 🔥🔥 Most helpful breakdown of bond ladders I’ve come across-great viewer question, superb explanation!

[@blueberryma]

One of the many aspects of these videos is that They question basic assumptions. In this case, why even hold bonds at all, and why follow the suggested ratios like 60/40. People who question assumptions and know that finding the right question to ask is the hard part, and once you have the right question, finding the answers becomes much easier. I had watched this video right after watching your “Why most people pick the wrong acid allocation for early retirement” video. In that video, it focused on having fixed assets such as treasuries, money markets and CDs so that you could avoid selling equities in a down market. A suggestion was that having 4 years of expenses in the fixed income just mentioned was the correct approach, and to ignore percentages. I agree, but the bond laddering video left me unsure about some key points. I think this video said that bond funds could be part of that “first bucket” (please correct me if I am wrong), which was not mentioned in the video that I referenced. So should bond funds count in the “protection bucket”? Or is it of more use in providing income to supplement guaranteed income to reach my expenses? And if so, why not consider a high dividend fund like FDVV instead of bonds to generate income. Currently my protection bucket has cash (for emergencies) and a CD ladder for protection. My bonds are there to, well who knows, let me have 20% so I can be a cow and follow the herd? That is why I am thinking of moving some of my bonds over to high dividend ETF.

[@jojocol]

Excellent video. This answered so many questions for me. I really appreciate your insight.

[@JayRay9999]

Best explanation on how bonds fit into your financial plan!

[@Jukkala]

Knowledge is power. Thank you James.

[@amyw.9477]

This was a great explanation! Thanks for pointing out the importance of protecting purchasing power, instead of just preservation of capital.

[@stevenobrien595]

Excellent presentation! Full of great info.

[@chrismaloy]

This was the best podcast I've heard on this topic. Amazing.

[@mikeroyce8926]

This is the best KZbin video I have come across to describe the use of bonds in a portfolio. absolutely brilliant James. Well done and thank you for this content. I have found it really helpful. 😀 It is the first time I have heard of ideally living off dividends and supplementing with bonds to top up the income to the desired level of expenditure in retirement [my attempt at summarising a helpful part of your video]. I am in the UK and I have just bought some bonds for the first time (I am planning to retire in 3 years time). I bought a short term "gilt" (UK government bond) within a UK tax efficient wrapper - with a duration of about 2 years and a yield of a bit more than 4%. i expect this to be above UK inflation every month until maturity. Next I plan to buy 5 year UK gilts yielding very slightly more than the two year gilts. When I can I will buy a couple of short term bond funds.

[@datbio7302]

you are barely beating inflation with your bonds ladder, what good with that?

[@leestack]

Hey James - and the Great Depression was inverse of today's situation of runaway money printing. So, you nailed it - what retirees need to worry about is purchasing power.

[@alanj45]

Excellent discussion!

[@jamesmorris913]

Surprisingly..He didn't bring up T.I.P.S. (Treasury Inflation Protected Securities) when he was on the topic of bond-laddering. They are an indispensable part of my fixed-portfolio!

[@bobby350z]

Agree. The person can have 20 yr (2030-2050) 100k/yr ladder for $1.5mil, put everything else in stocks.

[@BenRook]

Found you only recently...love your coverage of retirement concerns and planning.

[@raghureddy1746]

I really enjoy your clear presentations! Amazing! Thank you! However, I do want to point out one thing at 12:49, where you say cash dividend income increased 11%, that is a little misleading! Amount you received is the same, but of course, because the prices have gone down the percentages higher. But other than that, excellent!! Thank you!

[@PorscheSpeedster-kz6nc]

Ok. You asked about bond ladders and how to construct them. But first let me tell you how bonds suck relative to stocks…but ok here you go…. I love it!!!

[@METVWETV]

You weren't listening. Yes there was a hint of that but he said "Bonds have their place" And "You should first look to your Dividend payers for income and only use Bonds for two reasons 1. To fill in the gap of your Dividend payers and 2. To protect against Market downturns

[@1968Rking]

Bonds allow you to preserve principal and generate steady income. If you hold bonds to maturity, it doesn't matter if the price goes down (as they did in 2022). Assuming no default, which are extremely rare with investment grade bonds, you get 100% of your principal back at maturity. You can also buy tax advantaged muni bonds. With stocks, you need to sell them to raise cash to pay your bills. If the price of those stocks goes down when you have to pay your bills, you have to sell at a loss to raise cash. If that happens early in your retirement, you are going to exhaust your principal more quickly in stocks. And, if the price of the stocks has gone up, you are going to pay capital gains every time you sell. I like bonds because I would like to be able to enjoy myself in retirement by earning secure and predictable income (that allows me to budget my income accurately) and I would rather not have to constantly worry about what the stock market (or bond market) is doing.

[@fialee8ca132]

Bonds are essentially your "cash" cushion to hold you through the downturns. I would think 3-5yrs of expected after tax expenses.

[@Bondbeer]

Good video. My bond portfolio. 25% in a 20 year T bond at 4.75%. 25% in 10 T bills averaging 5.25%. 25% in 6 callable agency bonds averaging 6%. 25% in TIPS at 2.25% plus inflation adjustment.

[@SecondActswithMarco]

Excellent thoughts. Excellent presentation. Thoughts on CDs instead of bonds for both the FDIC insurance and the banks periodic incentive premiums? Big thanks.

[@scottsteibel]

James, I’ve been struggling with this myself What role should bonds play in our portfolio? This video has me thinking differently. It’s risk capacity first. Once I understand that, then my risk tolerance changes to sort of match my risk capacity! Then I can better structure our portfolio to best meet our needs. Thank you. 🙏

[@cod88188]

Instead of Bonds, I built a MYGA (Multi Year Guaranteed Annuities) ladder 5 ~ 6% interest / year for 10 year term, can take interest out each year, return of principle at end of term and are protected from market downturns Do need to be 59&1/2 to take distributions

[@bburstei]

The math and explanation is off on blended dividend yield. If underlying stock goes down and dividend stays the same the yield percentage goes up without the holder getting any more money.

[@Bondbeer]

Here is my sleep at night bond (and CD) allocation in year 1 of retirement. Have enough to live off the interest. That way my principal is untouched and all stock positions can grow without being touched. If stocks drop there is no sequence of return risk since I am not drawing any down.

[@lakerfam]

1st Thx for uploads!

[@spinnetti]

Seems like if you have enough investments, you should be able to easily weather downturns and skip bonds altogether, maybe with a year or two in cash money market

[@richard9827]

Do you have or can you put out a video talking about how to build a dividend portfolio. I see now that I don’t need bonds but I think I need a good mix of stocks that includes a fair amount of dividend stocks to act as a stabilizing mechanism for my equities

[@mattball2700]

Listened to this podcast. Really enjoyed. Wish I had known years ago that bond funds could collapse like this. Dear people: Don't buy into the idea bonds are safe!

[@ystebadvonschlegel3295]

Bond FUNDS are indeed at risk of incredible swings in value - they are NOT safe investments. Actually owning bonds are different. The vast majority of investors (maybe not those watching here, but overall) do not know the difference.

[@gizmobowen]

One takeaway for me is the idea of which part of your portfolio you're drawing from depending on the market. If I understand it correctly, I would simplify it to say, sell bonds when the market is in decline and sell stocks when the market is going up. This seems straight forward, but I'm not sure how that would perform versus rebalancing. Wouldn't rebalancing accomplish the same thing? What am I missing?

[@freedomlife3623]

Absolutely it does. Look for an episode Rob Berger did on that topic.

[@BadPhD777]

With Money Market Funds at 5%, I'll leave my low risk money there for now. Very simple - no ladder, easy to withdraw.

[@J-2024-v8i]

Only if you are thinking short term. It went from 0 to 5% in just two years. It could potentially go down as fast and, if so, in one year you could be making 2.5% and wish you had a bond that still gives you that 5% for a longer time.

[@METVWETV]

Until it's not, Then you're back to Bonds.

[@EJJ-EvArms]

​@Jl-620 The OP clearly said "for now". They're not wrong.

[@Chris-hw2nx]

Great video. I chuckled a little when I realized you said "bid/ask spread" not "big-ass spread" LOL😅

[@alicetemming4141]

Maybe this has already been asked…what are pros/cons of using CDs vs. bonds for the 5 year emergency fund during retirement?

[@davideberhart9523]

My bonds makeup a percentage of my holdings, but they're investment grade, short and intermediate term corporate bonds generating an average of 5.1% dividends. The US Treasury bonds are too conservative. There is something to be said about capital preservation as we go into our 60s. Thanks James, as always great job.

[@thomasreedy4751]

5 years in bonds with the 4% rule is a 80 / 20 portfolio. 10 years in bonds is a 60/40 portfolio with the 4% rule. The 4% rule was developed with a 50-75% equity allocation in mind.

[@robgerety]

Good explanation. With this knowledge, how do we apply it to create a well balanced portfolio when at age 80 in retirement? Also, assume the retiree has social security and pension income that more than covers his living expenses at the same level he had while employed full time. Is there any need to have any bonds in the portfolio whatsoever?

[@peaceofcake8464]

There is nothing special about dividends. It is equivalent to the company forcing you to sell some of your stock. All studies of stock market returns assume that you reinvent your dividends. If you spend your dividends instead of reinvesting them during a stock market decline, you will get the same results as if you sold some of your stock during the decline. Dividends do not avoid sequence of returns risk.

[@jamesmorris913]

Just recently discovered your channel, James; and you hit on a "hot button" topic, for me..I purchase individual treasuries and T.I.P.S. (I simply prefer laddering individual issues, to bond funds) within my self-directed 401K/457..however..I am SICK AND TIRED of getting "WHACKED" by my brokerage house (a VERY well known San Francisco based outfit) by the spreads, between what the spreads that they pay for Treasury paper, and what I pay for it, just because I have the AUDACITY, to not want to purchase bond funds! I would purchased them directly from Treaury-Direct..but I could only do that, OUTSIDE of my retirement accounts..thus, without benefit of tax-defered status, unfortunately. This whole situation, just makes me F-U-R-I-O-U-S!!!! Do you think that contacting the S.E.C. or the C.F.P.B. might yield any "fruit"???

[@eu7435]

iBonds do not have the same risk profile as the other bonds mentioned in the video. They are indexed to inflation and do not lose their principle. A downside is they can only be bought 10K/yr.

[@raytonks9947]

James, I think this is very interesting way to look at it. I'm probably in the middle of the risk tolerance spectrum. Let's me ask you a question though about your example. If Mike has $8 million in his portfolio and he only needs $100K for his expenses why worry about any of this? If he kept all of it in cash he could cover his expenses for 80 years. Ok sure that doesn't take into account inflation and what he could be earning on his cash account but still maybe worst case it's 60 years. Yes I'm throwing around numbers without any calculations to back it up, but I think you can see my point. Now I suspect if Mike actually has $8 million in his portfolio his expenses are probably more like $200-300K per year so maybe that doesn't quite work, but neither would your example. I bring this up because I'm in a position where I really don't need to earn more money to cover my future expenses I simply need to not lose it, like Mike. Because of my risk aversion I feel like I'm tending to make my situation more complicated by trying to cover my future expenses with dividend and bond income.

[@RussPayne]

Sounds like you need to read Mike Piper’s book “More Than Enough”. I haven’t read it, but I have heard him discuss the book’s concepts on KZbin videos.

[@freedomlife3623]

My thoughts are the exact. Mike could just buy laddered CD at least for his non-registered portfolio and use them when come mature to cover his expenses. Currently CD rate is much higher than inflation. Leave his registered portfolio to grow in the market. First 10 years of your retirement, sequence of return risk is real, after that you need to worry about longevity risk which Mike can buy Annuity to cover that risk. But with 8 million portfolio, he can just keep it in CD or treasury, no need to take the risk at all.

[@METVWETV]

He clearly said, "I suspect he needs a lot more than don't get too hung up on the numbers." Also, burying your money in the backyard at Zero growth is simply insane! You used the word "lose it" That's a misnomer. No one is losing their money. There are fluctuations but not loss. Your risk aversion needs to be addressed because you misunderstand what "risk" means. In fact, the only Real risk is Stuffing your mattress with your dollar bills and allowing inflation to Rob you! To continue with the metaphor, In time Your thick and stuffed mattress will have you sleeping on the floor after your dollars shrink to the size of Nickels!

[@polarpicket]

12:30 Wait. THE DOV YIELD as a % increased because the shares value dropped. But the yields themselves didn't pop like that for a holding investor.

[@Jean579-jv2bm]

In a high interest rate environment is cash return a valid option vs having a significant bond portfolio?

[@johncarmanarts]

Five years the longest period to drop and recover? The 2000 crash took 12 years for S&P to break even again. Concern for being too conservative with 8 million dollars seems bizarre to me. But I guess not for financial advisors who earn their 1-2% for a complex portfolio that rarely ever beats a low cost market index fund anyway.

[@Jack51971]

I love VGT. Vanguard Techology ETF. My God people. Everywhere you go and anywhere what do you see? People on a cell phone! Period! Technology!!! Fidelity has a similar ETF❤

[@NameWithheld-nm1es]

Have loved a few of the videos of yours I have watched. Thank you. This one has some sort of glitch with the video jumping in and out continuously. It's super distracting. Not sure if you have a way to fix that, but it really detracts from the information you are providing. I didn''t notice it on the other videos you posted that I watched. Can always just turn off the video, but thought I would make the request. Thank you

[@toantruong7901]

What about CDs as opposed to Bonds? With CDs we can get 5%+ nowadays. Thanks for discussion explanation!!

[@J-2024-v8i]

CDs would pretty much work the same as bonds as long as you hold them to maturity with a few differences. if you need to sell before maturity their value would be the same but you would likely pay a penalty. Only short- term CDs of about a year or less give 5%. If you want a longer maturity some bonds will provide that return for a longer time but increased risk. Also note that treasury bonds are state-tax exempt, and munis are federal tax exempt and sometimes also state tax exempt, while CDs are fully taxable. Hope this helps.

[@frankkeel8410]

😊 ​@@J-2024-v8i

[@FeeneyHollow]

Aren’t dividends based on stock price? So won’t they go down if the stock price goes down?

[@EJJ-EvArms]

Nope. In fact, if the dividend stays the same while the price goes down (which happens often), the "yield" reported (dividend to price ratio) goes up ironically. So dividend yield being high isn't always necessarily a good thing. Need to look at the stock's history to evaluate.

[@Level70-x4d]

Only if the company cuts their dividends.

[@GreySox]

Is is ill-advised to include some of my bond allocation in my taxable brokerage, or is that too tax inefficient? I have a little of SWAGX in a Schwab brokerage, along with SWTSX.

[@J-2024-v8i]

It’s tax inefficient in the accumulation phase when you are trying to reduce taxes. It is good to have them by retirement time to use them in the event of a downturn, especially if you retire before 59.5 when you can probably only tap your taxable brokerage and/or if you need to keep your reportable income low for health insurance before Medicare (yes, they give you interest but likely will be in a low tax bracket since you will no longer be earning an income ).

[@googtv1]

In a rising rate environment you may never get your principal back in bond fund. Also, many bond funds pay principal back to the shareholders as distributions in order to increase the yield to make it more appealing when comparing other funds. Individual bonds are the best way to preserve your principal and know how much oncome you're going to receive. stay away from bond mutual funds and ETF's.

[@frankkeel8410]

Seniors short term investing only! Try to keep your principal even though inflation is eating you up! No fund Manager educate your self .

[@Jack51971]

Over time, you decide how much, growth company funds or stocks will give you more returns. More risk more reward. The market is a marathon not a sprint. Stay the course. I know. Excessive trading and panic selling will leave you nowhere! Hold! Hold! You panic sell and some smart boy buys your beat up shares! A few years later he is smiling. March 20 2020. Covid market drop level. Look at prices today? Had you held or bought on that FEAR instead of selling if you did you would be 😊😊😊

[@M22Research]

Good discussion. I like the notion of minimizing bonds. Five years “safe”/emergency money seems extremely conservative, particularly for folks with far more modest than $5-10 mil wealth. They risk getting killed by inflation. Of course it is a personal choice, but three years might be a more moderate approach. It certainly helps if you are already collecting social security and/or perhaps have a pension. And the first year of that “safe”/emergency money, particularly today, might be better put in a 5% money market or perhaps in laddered CDs. Another option for really conservative folks desiring “safe” streams is to evaluate annuities - they can be smartly bought to simulate a pension-like stream of income. In fact, companies that have eliminated their pension programs do exactly this - convert their pension funds into employee annuities with highly rated insurance companies. Ask me how I know this, personally. ;-)

[@ystebadvonschlegel3295]

I don’t trust annuities in that I have to deposit a large amount of money with one company and trust they won’t go out of business. Too much counterparty risk for my taste

[@METVWETV]

​@ystebadvonschlegel3295 That's the least of what should concern you. The hidden fees And Massive commissions coupled with the low yields is what keeps me away

[@dixter1652]

I never understood why people just have to make it more complicated than it has to be... lets take a guy/gal that has $1mil ... they are retired, fixed income... they go to Fidelity and look at all of the bonds and look for the highest coupon, coupon creates spending money, then they look at how long that coupon is going to pay them... and they buy 1000 bonds... that costs $1mil.... then every 6 months the bond pays them and that part of the income stream gets added to SS/pension/other income.... and that is what you live and play with... it can be Treasury Bonds that pay over 5% or some strong corporate bonds that pay around 10% .... its easy to do... and you have a choice to hold them to maturity or not... simple

[@buyerclub2]

I think your video is great, and informative, but one of your comments floored me. You said "nobody saw long term bonds would drop in value over 20% in 2022. Actually, how could you not. At that time interest rates really were almost guaranteed not to go lower, but only higher. As inflation rose, the Fed took aggressive action and rose rates, as would be expected. And as you know, as rates rise, values of long term instruments would drop substantially. It is why at that time I pleaded to people NOT to own bonds. Now that interest rates are about 5% for short term instruments, I think bonds are somewhat safer. But like you present, if people have large enough portfolios they still should not have them. Here is a fundamental fact IMO. Equities represent the productivy of companies and their ability to make profit. Ultimately they should accomplish this over time. Bonds represent what the Fed needs to do, and the overall demand for money. I can NOT predict that. Not to say it will go up or down. Personally, I think if companies can increase supply and demand stays the same, then inflation will also be under control and the Fed wo'n;t do much. BUT I don't know what demand will be for money, especially from the government. So I like equities. split between growth, and high dividend. A portfolio based on this to me, makes much more sense.

[@CompArchIllinois]

I think you missed the person's question. This video never actually discusses "Bond Ladders".

[@mtgwdefender]

😂😂

[@daveh6402]

He sure did discuss bond ladders

[@jamespile6884]

He’s just wrong on this subject. He’s young and only remembers historically low interest rates. Recently you could easilyget 6-7% YTMs, the proceeds of which can be invested (outside of dividends, which do matter, there is no compounding in the stock market: none of its value over time matters as much as WHEN you sell it. Plus, at maturity you get all your principle back. And he’s way too focused on 1-month treasuries which has only recently been a reasonable way to earn short-term interest in the interest of liquidity (maybe to buy some of those terrifying dips he glosses over?)-see Warren Buffet and BH holding sort term t-bills. Not very relevant in today’s market.

[@robertjohnson4401]

You are missing the point. Here is the scenario. You are retiring January 1, 1929. You know the future after this date of the return on stocks and bonds. What should a retiree invest in stocks and bonds(fixed income) at that time? Given today's options how should a retiree invest his fixed income? Assume the retiree has a total of $2M invested and he needs $40,000 per year inflation adjusted in today's dollars from his portfolio long term. Social Security will take care of the rest of his needs.

[@Jack51971]

Over time the market is higher than it was 5 10 or 15 years ago. Study! What was the price of Microsoft, Apple, Facebook, Costco, Adobe, Chipitle, McDonalds, Autozone, all higher today. Invest in good companies people love and hold hold hold!

[@Jack51971]

Purchasing power....my salad dressing has gone from .92 cents to $1.92 the last 3 years. Inflation means less purchasing power. Cheers!😮

[@datbio7302]

I will suggest Mike would just hire James as his advisor and he will be fine..

[@77magicbus]

Why own bonds? Income and almost no risk when buying short term individual , high quality paper like A+ rated munis to AAA Treasuries. Stocks are greatly overpriced and can fall up to 90% from current levels. Inflation and purchasing power isn't the only or even the biggest threat at this time. Investors can hedge purchasing power with gold stocks or gold itself. You have to do something with your cash. Putting money in stocks at high levels when you are over 45 or 50 isn't smart. I disagree completely with your position here. Great investors have to hold cash and short term bonds at times for however long is necessary. Why do you think Warren Buffett is holding 150 Billion in short term bonds NOW? He isn't worrying about loss of purchasing power. And at some point when stocks come down in price and increase in value, he will be mostly in stocks. You are too young. You haven't really seen and felt a bear market and its destruction. I guarantee you are going to be surprised going forward.

[@datbio7302]

what percentage of 150 billion cash assets represent in Warren Buffet's portfolio?

[@AlexFlavell]

Let’s see, who should I take advice from…random internet dude, or licensed and registered CFP? 🤔😂

[@mtgwdefender]

​@@AlexFlavellBoth

[@77magicbus]

@@datbio7302 Berkshire has about 36% in Bonds and cash and 64% in stocks.

[@jamesmorris913]

Yes..SOME stocks are hideously overvalued, right now. The "magnificent seven"..specifically, and they definitely have caused the S&P 500, to become extremely "top heavy", at the moment; which makes a correction in that index, HIGHLY likely; very soon..IMHO. I have recently diversified more into VT, globally oriented; with FAR more reasonable P.E. ratios..for that exact reason! It's feeling MUCH too "1999-ish" lately, to me!

[@LazyWay-m1w]

This is a question? LOL.

[@Rogue_Money]

How do you preserve purchasing power? One word…Bitcoin.

[@eldersprig]

LOL. One word...plastics.

[@EJJ-EvArms]

Vaporware. No thanks.