conversation: User (Sports_Shorts): "A typical 401(k) plan advised here and in Target Retirement portfolios suggests a certain distribution of stocks vs bonds. For instance, a young person's retirement portfolio might include 90% stocks and 10% bonds. The bond portion is maybe the less sexy aspect, but there are quite a few options there as well. How do you decide which allocation of bonds to choose?\n\nFor instance, I am thinking of the following distribution of the bond portion:\n\n60% Long Term US Gov Bond Fund (Net Expense Ratio 0.05%)\n20% Intermediate US Gov Bond Fund (NER 0.28%)\n20% Diversified US and International Corporate "Junk Bond" Fund (NER 0.50%).\n\nIs it desirable enough to have diverse types of bonds to justify the higher expense ratios, and what kind of distribution is appropriate?"
  Self: "How old are you?  If you are far enough from retirement you don't' need any bonds in your portfolio."
  freedomismoney (freedomismoney): "I disagree with this. If stocks bomb, its probable based on history, that bonds will not. This will skew your asset allocation, you will sell off some bonds to correct this, and have money to buy the now cheap stocks (forces you to sell high and buy low). William Bernstein's book shows how having some bonds actually improves portfolio performance overall because of this effect. As a young person, you definitely do want to minimize the amount held in bonds. \n\nI personally skew more towards short term govt bonds. Long term are more risky (sensitive to interest rates). "
  Self: "If you have a long enough time horizon, you don't need bonds. \n\nI never heard of any bonds outperforming stocks over time."
  boylston243 (boylston243): "They aren't supposed to or expected to outperform stocks over time.  But they add diversification and will typically also lower the volatility in your overall portfolio."
  Self: "If you are a long term investor then volatility shouldn't matter."
  boylston243 (boylston243): "Pretending that volatility doesn't matter is living in a fantasy land.  And it does matter.  Your allocation has to change over time, what about when you are only a year or two away from retirement?"
  Self: "&gt; what about when you are only a year or two away from retirement?\n\nTwo to three years needed expenses in cash, let the rest ride.  Glide path strategies are fools gold."
  boylston243 (boylston243): "Okay but then you are not in 100% stock if you have 2-3 years of expenses sitting in cash.  "
  Self: "And no bonds."
  boylston243 (boylston243): "Yea and if you owned the Agg instead of cash you would've made over 5% in 2008 and 2009 versus the 0% return on your cash."
  Self: "Why should anyone care what their investment makes in one year?\n\nEdit:  And...is that what you did in 2008?  Moved everything to high grade bonds? "
  boylston243 (boylston243): "Your rationale makes no sense."
  Self: "The best performing assets in investment history are stocks.  So why focus on anything else?  What doesn't make sense about it?"
  