I am a little light on fixed income investments except for in a few corporate 401Ks

with the Back Door Roth coming up again in December

what is your favorite way to invest in long term principal preservation and moderate growth?

Private Credit.

Currently yielding in the 9-10% range.

Typically will be mostly first lien senior secured loans.
Companies with an EBITDA around 100mm.

I feel pretty secure. Not risk free but I'm comfortable with it.

In my mind it's like this. Would I lend money to Whataburger for 9.5% interest?

nactownag said:

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Private Credit.

Currently yielding in the 9-10% range.

Typically will be mostly first lien senior secured loans.
Companies with an EBITDA around 100mm.

I feel pretty secure. Not risk free but I'm comfortable with it.

In my mind it's like this. Would I lend money to Whataburger for 9.5% interest?

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I assume minimum investments are $500,000? $1M?

I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

We have a municipal bond ladder that covers most of ours and then I have some play money in private credit to test those waters.

Depends on the structure and terms, but many have much lower minimums.

You'll give up some liquidity. But there are some BDC funds that are quarterly liquid.

So not something to put your emergency fund in.

chris1515 said:

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I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

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Similar situation

I've been adding to my 401K broad market bond fund over the last year but I'm still at just 15% bonds. The rest is S&P, Russell and total world equities


And while I get bonds offers more stability and diversification I keep thinking.....


If the S&P really takes a crap and doesn't recover. Does it really matter where our money is? Will anything preserve wealth under such a catastrophic situation? Same goes for international stocks


I've also added about 1.8% of my total portfolio into bitcoin via IBIT

jamey said:

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chris1515 said:

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I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

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Similar situation

I've been adding to my 401K broad market bond fund over the last year but I'm still at just 15% bonds. The rest is S&P, Russell and total world equities


And while I get bonds offers more stability and diversification I keep thinking.....


If the S&P really takes a crap and doesn't recover. Does it really matter where our money is? Will anything preserve wealth under such a catastrophic situation? Same goes for international stocks


I've also added about 1.8% of my total portfolio into bitcoin via IBIT

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About all you can do is diversify as much as you can. When this thing takes a dump, we will all be impacted.

At that point, it will be a situation where one-eyed men will be kings of the blind.

jamey said:

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chris1515 said:

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I'll keep an eye on this thread. A few months ago I was at 0% fixed income and have been piling into AGG (just a bond index fund).

I'm struggling with putting too much into that. Right now I'm ok with the trade off of higher volatility for higher potential upside that comes with a higher equity percentage.

---

Similar situation

I've been adding to my 401K broad market bond fund over the last year but I'm still at just 15% bonds. The rest is S&P, Russell and total world equities


And while I get bonds offers more stability and diversification I keep thinking.....


If the S&P really takes a crap and doesn't recover. Does it really matter where our money is? Will anything preserve wealth under such a catastrophic situation? Same goes for international stocks


I've also added about 1.8% of my total portfolio into bitcoin via IBIT

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Agree. I plan to retire in 5 years at 55. I've run all sorts of simulations, and big picture, staying aggressive always seems to be the best odds. If the S&P500 takes a dump, you aren't gonna have enough in bonds to save your ass. And if you have so much in bonds that it would save your ass, you're already running a much higher risk of eventually running out of $$$ because your long-term return sucks - inflation of your cost to live is gonna kill you. Big picture, stay aggressive and just make sure you have enough put away to ride out extended downturns.

Do you have a particular tool you use for simulations?

If you keep 2 years in cash (hysa/mm/CD/t-bills) in retirement you could survive most stock market crashes without selling at the bottom. Most corrections rebound in less than 2 years.

This is a fairly simplistic one but is cool to see how your portfolio would survive in every set of historical period of the market.

https://firecalc.com

But I've also built my own in excel which I've run all sorts of combinations of returns, inflation assumptions, etc. I also have Right Capital's software, which is really cool because not only does it help you understand outcomes (with confidence levels) of various combinations of portfolio aggressiveness, it also provides sensitivity analysis as well as tax strategy - particularly to support Roth conversions. Again, you can run all sorts of simulations, but everything I do keeps coming back to keeping a diversified equity based portfolio (ie very heavy S&P 500) offering the most likely odds of success in not running out as well as having the most at the end. A lot of advisors use the same software to manage their clients. I got lifetime access to it for like $200 thru an advisor

To the point above, there is a near term spend subset that being conservative makes sense (I'd say <5 years of expenses), anything beyond that and I keep coming up with staying equity aggressive wins

What do you call aggressive in equities. I'm 55 and was thinking about taking my 15% bonds to 20%

The rest

60% S&P
10% Small and Mid Cap
15% International
15% Bonds currently

That's similar to a few aggressive allocations from firms. The caveat being a lot of firms are introducing more "alternatives" to their allocation tables depending on your liquidity requirements (Diversified hedge funds, long/short, event driven, private equity/credit, etc.)

chris1515 said:

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Do you have a particular tool you use for simulations?

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This one is incredible.

Email Craig Israelsen at 7Twelveportfolio.com and tell him you saw him mentioned on Josh Scanlen's youtube channel.

Best $100 I've spent in a while. It's an outstanding spreadsheet simulator.

craig@7Twelveportfolio.com

jamey said:

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What do you call aggressive in equities. I'm 55 and was thinking about taking my 15% bonds to 20%

The rest

60% S&P
10% Small and Mid Cap
15% International
15% Bonds currently

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That would fit the aggressive mold. That said, instead of looking at a rule of thumb mix on allocations, the best way to look at it is with a 5 year outlook, and specifically, what net distributions from your investments do you expect to take in the next 5 years. You don't need all of that amount in bonds, but having a large part in bonds/fixed is a good way to mitigate sequence of returns risk. Then keep the rest in equities.

The logic is that the average bear market is 2.5 years, with the longest being a little over 5. So this approach allows you to stay in equities as much as possible, but protects vs sequence of returns risk. It's why rules of thumb by age allocations are not ideal - the distributions someone wants to take in the next 5 years relative to the size of their portfolio dictates the mix. Much more customized/optimized

This is a really good video for people approaching retirement. I recommend the entire thing, but starting at minute 19 is a really good example of the sequence of returns risk which he then rolls into how to manage it (which directly leads to "what should my bond mix be?")

Thanks, I'll check that out. I actually subscribe to this guy but have not seen this one

I like the idea of thinking of bonds as dry powder to use in a downturn

Granted the recent downturn saw bond prices drop pretty significantly too