Why I Moved Money To Bonds
My strategy for funding life's joys and easing spending anxiety in retirement.
I recently moved 10% of my portfolio from stocks to cash and bonds. My decision had nothing to do with the threat of tariffs, a potential recession, or the market’s volatility. I learned long ago that the short-term performance of the market is unknowable. I have no idea how the stock market will perform for the rest of 2025, 2026, or 2027!
So why did I do it? Because I don’t hold bonds so I can earn more money;
I own bonds so I can spend more money.
I use cash and bonds to cover my expenses in the short- to medium-term, and I use stocks to cover my long term-expenses.
I noticed a few months ago that I was hesitating a bit before making travel plans. I was experiencing some angst about the cost. A quick trip to the West Coast to visit family and a brand new grandchild. A long weekend in New York City to see a slew of Broadway shows. An excursion to view the Tournament of Roses parade that my flower-loving wife had been dreaming of for years. I started asking myself, “Is it really worth it?”
What was making me hesitate? I was feeling tight even though I had plenty of money. Why? I look exclusively to my cash and bond portfolio to cover current expenses. By increasing what I have in bonds, it becomes psychologically easier for me to spend with confidence today.
After realizing why I was hesitating, I also increased the number of years my cash and bond portfolio can cover my expenses. Bear markets are inevitable. My traditional strategy was to spend less during down markets. But today, that strategy doesn’t work for me. I don’t want to delay taking a trip, helping friends and family, or giving to worthy causes.
I understand time is my scarce resource, and a dream delayed may become a dream denied.
My larger allocation to cash and bonds gives me the capacity to keep spending what I want for a long time without being forced to sell my equities at bargain basement prices during a bear market.
I am 65 and retired. I have left the accumulation phase of life, and am squarely in the distribution phase. While I was working, I invested my money overwhelmingly in equities. I understood the long-term returns of equities far exceeded bonds, and higher returns during the accumulation phase made me a lot more money.
Down markets didn’t bother me much. I was earning a good living, consistently investing in my portfolio, and didn’t expect to touch my investments for a long time. With this perspective, I viewed down markets as temporary and a buying opportunity.
I retired 2 1/2 years ago. I now need to take regular distributions from my portfolio to fund our lifestyle. Long-term liabilities are down. At this stage of life, my long term is less long than it used to be.
My wife and I have ample plenty to live the comfortable lifestyle we desire. We want to enjoy life to the fullest, have fun and lots of it, be generous with family, friends, and community, and experience the joy of giving money to help heal our broken world.
I no longer care much about my portfolio’s rate of return. I have plenty of money left in equities for the long term. If my wealth manager is doing a good job, I will earn a return that closely tracks the returns of global equities. On a risk-adjusted basis, that is about as good as it gets.
Asset management is not a competitive sport where the person with the largest portfolio or the highest rate of return wins. Excellent investment advice is all about building portfolios that give you the income to satisfy your needs, most of your wants, and–if you are lucky, some of your wishes–until the day you die.
Until our next conversation,
David
Small Steps & Worthy Questions
Notice when you get fearful about not having enough money. What do you do to allay your fears?
What is your strategy for living life fully during an extended bear market?
What dreams do you want to fulfill now, while you can?
Please consider posting a comment if you have had a similar experience. Do you think my solution makes sense for you? I’d love to hear your reaction.