> Anyone who holds bonds in this market will likely lose money.

Yes, you lose money (or more precisely you lose opportunity) but you gain certainty. Which is what you want for retirement

That’s pretty much the definition of risk premium.

I sleep on certainty. I feel bad for the people based their futures entirely on a trajectory from a time we'll look back on as "utterly unsustainable".

If you don’t have hope when you have little else, you don’t have anything. The behavior is understandable, even if wildly irrational.

It depends on the goal / priority. In most financial / retirement advice they are focused on average middle class Americans. They tend to have too little savings, and not a lot of options.

If you have more than enough saved to meet your basic needs, it does (IMO) make sense to give up some total income for lower variance.

Bonds only give you certainty to the extent that inflation remains certain.

Stocks generally rise with inflation, whereas bonds continue paying out the same nominal amount, which buys you less over time.

As a retiree I'm 50/45/5 in stocks/bonds/cash, having opted for a conservative portfolio. The stocks are the only reason I haven't lost buying power. But the bonds have performed so poorly that I've barely kept up with inflation despite the amazing bull run in stocks.

Are we talking about bonds or government bonds here? The former will beat inflations assuming you don't just buy AAA rated ones. Investment grade perpetual bonds in US dollars yield over 6.5% on a Yield-to-call basis.

Which perpetual bonds yield 6.5% on a UTC basis?

You may not have heard of TIPS (Treasury Inflation-Protected Securities) but they give you certainty even if inflation is uncertain.

Currently you get 2.75% yield in real terms for the 30 year maturity: https://www.cnbc.com/quotes/US30YTIP

That's why you buy inflation linked bonds

Wow, I am surprised that you think 50% in stocks as a retiree is a "conservative portfolio".

> Bonds are no longer recommended. Current research indicates 100% equities to be the best composition leading up to, and past, retirement.

Are you referring to Anarkulova et al? Might be worth mentioning that the fixed income part is replaced with international equity, not more domestic equity.

That’s been something I’ve started doing. The nice part of the bond chunk of my investment portfolio is the current income aspect of it, with monthly dividends that give an annualized return of a touch under 4% on top of the capital growth.

4% on top of the capital growth? Please ELI5.

So there’s two ways you make money from any mutual fund: the first is that the value of the shares can go up (that’s called capital growth). The second is through dividends and distributions. Dividends will be higher with a bond fund than stocks just because the trend for the last few decades has been for corporations to focus on growing share price rather than paying out dividends to shareholders. Distributions are realized capital gains in the fund that are paid out to shareholders, typically annually or semiannually.¹ Stock funds usually pay dividends on a quarterly basis, while bond funds may pay monthly. In my case, I’m getting a monthly dividend of about ⅓% from my bond fond (Fidelity bond index fund), although checking my records, the share price has been relatively steady over the last few years so my IRR is not that much above the dividend rate.

Another good option for something that can give good current income is REIT stocks. The management fees on the funds that specialize in these tend to be high for my tastes (I like passively managed funds with management fees that could be rounding errors) so when I’ve had money in REITs, I’ve typically looked at the top stocks in the REIT funds and just bought those directly with dividend reinvestment. Note that because of the nature of REIT dividends and taxes, it’s better to use tax-advantaged accounts to buy these than to put money in a regular retail account towards them.²

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1. Back during the first dotcom goldrush when tech stocks were especially volatile (1999–2001 in particular), people who bought dotcom mutual funds in taxable accounts often ended up with a big distribution from the fund and a drop in share price greater than that distribution so that they would end up not only losing money on their investment but they also had a tax bill for their troubles since distributions will count as realized capital gains.

2. Important to note that I’m not a financial advisor and my advice is probably garbage.

What would you recommend to increase international equity exposure? Index funds ETF like VWRA?

For most people, $VT (or VWRA) is optimal. You should have a U.S. tilt because most growth is coming out of the U.S. $VT will naturally rebalance into international equities on that growth. If you already have a U.S. heavy portfolio and want more international exposure, $VXUS.

Stocks for the Long Run makes the pretty compelling case that over longer holding periods stocks are less risky than bonds.

Yes, and “I’m nearing retirement” is the opposite of the long run.

Their definition of long run and your definition of long run are probably different.

Also, it should be noted, just because it's the optimal to have the most $'s that shouldn't be the goal. The goal should be to survive your retirement with "enough".

And it should also be mentioned, most people can't stomach holding 100% equities, for a very good reason. When the 40-60% market crash happens, people get emotional and make emotional decisions. Sure there are the lucky few that can hold out, but most can't. Are you going to be one of the few lucky ones? If you haven't yet been through it once(last one in the USA was 2008/9), how do you know for sure?

TIPS are yielding 2.1-2.75% _real_ across the curve from 10 to 30 years out.

Worth noting the cost of dealing with Treasury's absolute dumpster fire of a website, though.

There’s TIPS ETFs

I bonds have to be bought from that website but tips can be bought from dealers.

Why not use a broker? I usually recommend Interactive Brokers here.

Bonds will give you poor (probably negative) real returns, but if you're 10-20 years away from dying you're more concerned with wealth preservation than growing your wealth.

People have forgotten this but equities are an infinite duration asset that are prone to periodic, significant, often violent crashes.

(Edit: often at a time when everyone is absolutely convinced they're the best asset class...)

You can keep some equity exposure but you don't want 1929 or 2008 to happen the day after you retire when you might live for another 30 years

> Remember that rates and bond prices are inversely related. Anyone who holds bonds in this market will likely lose money.

That's assuming you sell the bonds before their end.

"Current research" Citation needed. Multiple, given the extraordinary claim.

Could you please link to the research?

The theory I have seen when they say we should convert into bounds near retirement is that you don't really get to decide when to sell, that's money you need to live. And if you are unlucky enough to need money when there is a market crash, you are screwed.

Bounds are not as volatile, so even if you lose some money from inflation, you are less likely to lose a lot of money, money you need to live, from the whims of the market. You want to protect your capital, yields don't matter as much if you near the end of your life.

If you are younger, and you make reasonable investments and not gambles, you can expect that your value will go up (more so than with bounds) within a decade or two, and because you have income, you don't need that money and you can wait for the market to recover before selling.