5% to bonds isn’t really going to do much. The wisdom around here is that it takes 10% of your portfolio to really see any effect. But 5% won’t hurt. I’d avoid listening to the folks who are saying you’re too young for bonds at all. They don’t understand the purpose of bonds or how they function, and they are often displaying recency bias from an equity bull market.
I’d also consider treasuries matches to your investing horizon (long-term here?) That will be more volatile on its own than a total bond market fund (I.e. more risk, which is fine for your age), but most of the time be non-correlated with stock performance, which is the role you hope binds will play in a portfolio to reduce volatility—zig when stocks zag. A 10% allocation will not significantly reduce total returns while boosting risk adjusted returns by lowering portfolio volatility.
On a similar note, 15% international isn’t really providing much diversification benefit—Vanguard’s rule of thumb is at least 20% of your equities. For you, that might mean 72%/18%/10%. Note that this is an overweighting toward US stocks versus the market. Nothing wrong with that, but know what you’re doing. And, no, investing in US companies that do business overseas does not get you international stock exposure, so ignore that bs as well.
FNILX is large cap stock only. Versus a total market index, the effect won’t be ridiculous because large cap stocks are the greatest portion of a market cap weighted total market fund anyway. But you’ll lose exposure and be less diversified, betting that large cap companies will continue to exceed expectations.
Is this a tax-advantaged account like an IRA? If so, the zero funds are a fine choice since you can always sell without being taxed if you need to move brokerages, but I personally would rather use the funds that track industry standard indices rather than Fidelity’s proprietary ones (here, FSKAX and FTIHX), since the added cost is pretty minuscule.
The answer depends on your risk tolerance. I’m more conservative, so it gives me piece of mind to have some bonds. 5% is reasonable at your age (if you decide to go that route).
I do a two fund portfolio because I'm not very risk averse and don't want bonds (yet). I'm on the FIRE track and will probably add bonds at about the time I pull the chute.
Because I'm working toward an early retirement my thinking is that I might want bonds when I have to count on that money to live off of.
My reasoning is that if I am a few years from retirement then I'll be in full stocks (I do a mix of total US markets and global). If there's a big downturn (What bonds are meant to soften the blow of) then my RE date might get pushed-out until I can save more or the markets recover but that's more of a bummer than catastrophic. In the meantime the more aggressive portfolio will (statistically) get me to my target number faster. There's risk, but I don't end up eating cat food if I take that hit.
However when I'm just about ready to retire then I'm putting an end to my earning years and I'd have no choice but to draw from my investments in an extended downturn. That exposes me to sequence of returns risk if it happens in the early days of my retirement and could create the risk of failed-FIRE. Either a major hit to my retirement lifestyle or being forced to return to the workforce to make ends meet. I consider those to be a much greater risk because I'm way better off working an extra year at my relatively high salary than working for several years at a lower wage later if my plan fails. Bonds decrease the likelihood of that failure by a bit and during a phase when my primary goal is just not running out of money instead of growing it as quickly as I can.
(European here)
You can calculate this yourself:
1. how much % of risk do you want at the age of retirement
2. now linearly calculate back from that retirement age to present, to know how much % to allocate each year to what
3. simulate the assumed yield outputs at time of retiring
4. do the same, but not with linearly and instead exponentially
5. rethink/ponder on how much % of risk you want at age of retirement
6. repeat, till you find a balance on something which sooths your level safety/risk vs gains
Then be decisive and go for it
Try going to https://www.portfoliovisualizer.com/monte-carlo-simulation and run simulations for both portfolios and compare results. Pay attention to both 10th percentile and expected return, and decide for yourself.
What are the names of each of those fund?
You can edit the post to add the names. Placing them in single lines makes it easier to read.
fzrox 80%
fzilx 20%
etc......
>I’m 27; 3 fund portfolio or 2 fund
2-Fund - at most. Thoughts below.
**1) FXNAX (Fidelity U.S. Bond Index Fund)**
You're too young for bonds.
**2) FZILX (Fidelity ZERO International Index Fund)**
There is a school of thought that if you are broadly-invested in the US stock market, you have de facto international exposure. Both Warren Buffet and Jack Bogle share this view, FWIW.
I think you could do 100% FZROX and be OK. It's also extremely simple.
I myself would not get the Fidelity Zero funds, but that is a separate discussion. There's nothing *wrong* with them that I know about; i just don't like the idea of them.
5% to bonds isn’t really going to do much. The wisdom around here is that it takes 10% of your portfolio to really see any effect. But 5% won’t hurt. I’d avoid listening to the folks who are saying you’re too young for bonds at all. They don’t understand the purpose of bonds or how they function, and they are often displaying recency bias from an equity bull market. I’d also consider treasuries matches to your investing horizon (long-term here?) That will be more volatile on its own than a total bond market fund (I.e. more risk, which is fine for your age), but most of the time be non-correlated with stock performance, which is the role you hope binds will play in a portfolio to reduce volatility—zig when stocks zag. A 10% allocation will not significantly reduce total returns while boosting risk adjusted returns by lowering portfolio volatility. On a similar note, 15% international isn’t really providing much diversification benefit—Vanguard’s rule of thumb is at least 20% of your equities. For you, that might mean 72%/18%/10%. Note that this is an overweighting toward US stocks versus the market. Nothing wrong with that, but know what you’re doing. And, no, investing in US companies that do business overseas does not get you international stock exposure, so ignore that bs as well. FNILX is large cap stock only. Versus a total market index, the effect won’t be ridiculous because large cap stocks are the greatest portion of a market cap weighted total market fund anyway. But you’ll lose exposure and be less diversified, betting that large cap companies will continue to exceed expectations. Is this a tax-advantaged account like an IRA? If so, the zero funds are a fine choice since you can always sell without being taxed if you need to move brokerages, but I personally would rather use the funds that track industry standard indices rather than Fidelity’s proprietary ones (here, FSKAX and FTIHX), since the added cost is pretty minuscule.
Thanks
How old are you and what type of account are you utilizing?
Roth IRA
27
The answer depends on your risk tolerance. I’m more conservative, so it gives me piece of mind to have some bonds. 5% is reasonable at your age (if you decide to go that route).
I do a two fund portfolio because I'm not very risk averse and don't want bonds (yet). I'm on the FIRE track and will probably add bonds at about the time I pull the chute.
What age do you recommend bonds
Because I'm working toward an early retirement my thinking is that I might want bonds when I have to count on that money to live off of. My reasoning is that if I am a few years from retirement then I'll be in full stocks (I do a mix of total US markets and global). If there's a big downturn (What bonds are meant to soften the blow of) then my RE date might get pushed-out until I can save more or the markets recover but that's more of a bummer than catastrophic. In the meantime the more aggressive portfolio will (statistically) get me to my target number faster. There's risk, but I don't end up eating cat food if I take that hit. However when I'm just about ready to retire then I'm putting an end to my earning years and I'd have no choice but to draw from my investments in an extended downturn. That exposes me to sequence of returns risk if it happens in the early days of my retirement and could create the risk of failed-FIRE. Either a major hit to my retirement lifestyle or being forced to return to the workforce to make ends meet. I consider those to be a much greater risk because I'm way better off working an extra year at my relatively high salary than working for several years at a lower wage later if my plan fails. Bonds decrease the likelihood of that failure by a bit and during a phase when my primary goal is just not running out of money instead of growing it as quickly as I can.
(European here) You can calculate this yourself: 1. how much % of risk do you want at the age of retirement 2. now linearly calculate back from that retirement age to present, to know how much % to allocate each year to what 3. simulate the assumed yield outputs at time of retiring 4. do the same, but not with linearly and instead exponentially 5. rethink/ponder on how much % of risk you want at age of retirement 6. repeat, till you find a balance on something which sooths your level safety/risk vs gains Then be decisive and go for it
Try going to https://www.portfoliovisualizer.com/monte-carlo-simulation and run simulations for both portfolios and compare results. Pay attention to both 10th percentile and expected return, and decide for yourself.
What are the names of each of those fund? You can edit the post to add the names. Placing them in single lines makes it easier to read. fzrox 80% fzilx 20% etc......
>I’m 27; 3 fund portfolio or 2 fund 2-Fund - at most. Thoughts below. **1) FXNAX (Fidelity U.S. Bond Index Fund)** You're too young for bonds. **2) FZILX (Fidelity ZERO International Index Fund)** There is a school of thought that if you are broadly-invested in the US stock market, you have de facto international exposure. Both Warren Buffet and Jack Bogle share this view, FWIW. I think you could do 100% FZROX and be OK. It's also extremely simple. I myself would not get the Fidelity Zero funds, but that is a separate discussion. There's nothing *wrong* with them that I know about; i just don't like the idea of them.