Hello everyone!
I'm at the point where I'd like to revisit my bond allocation. My portfolio is currently 50% VTI, 35% IXUS, and 15% cash, excluding Pillar 2. Pillar 2 accounts for ~15% of my net wealth.
It's my understanding that the purpose of bonds is to provide "ballast" during market downturns, when bonds oftentimes appreciate and benefit the portfolio through rebalancing (thus selling bonds high and buying stocks low). Unfortunately, although Pillar 2 behaves much like a bond (stable returns of ~1-2% / year), I cannot use it for rebalancing.
My questions are:
I'm at the point where I'd like to revisit my bond allocation. My portfolio is currently 50% VTI, 35% IXUS, and 15% cash, excluding Pillar 2. Pillar 2 accounts for ~15% of my net wealth.
It's my understanding that the purpose of bonds is to provide "ballast" during market downturns, when bonds oftentimes appreciate and benefit the portfolio through rebalancing (thus selling bonds high and buying stocks low). Unfortunately, although Pillar 2 behaves much like a bond (stable returns of ~1-2% / year), I cannot use it for rebalancing.
My questions are:
- Should I count the Pillar 2 as bonds in my portfolio? Or would it be better to exclude it from the portfolio, estimate the annuity I'd start receiving after retiring, and subtract that from my expenses during retirement when thinking about how much I need to save for a SWR of ~3-3.5%?
- How do I go about rebalancing? If I count Pillar 2 as bonds and keep just 5% cash / bonds in my brokerage, I don't think it would be enough to properly rebalance during a market downturn, I'd probably need to keep at least 10-15% in my brokerage, which is a bit more conservative than I'd prefer right now.
- What bonds do I buy? I'd prefer government bond funds, because they're less correlated with stocks and provide better diversification than corporate bonds. Do I go only for Swiss bonds? Should I diversify into global bonds? For the purpose of rebalancing, I feel like going global is more important: e.g., consider a crash that affects mostly the US, leaving Switzerland mostly unaffected. Swiss bonds won't go up, but US treasuries will, so if I'm domestic-only, there's less opportunity for rebalancing.
- What ratio of domestic vs global bonds should I use? Swiss bonds make up < 1% of global bond funds. Should I just consider Pillar 2 as the domestic bond allocation, and go global with the rest?
- If I diversify into global bonds, should I hedge them to CHF, or should I keep them unhedged? I think leaving them unhedged might be fine for rebalancing, and hedging would be more important when I'd start withdrawing from my portfolio during retirement.
- AGGG - global aggregate, unhedged, TER 0.1% - includes corporate bonds, which I'd rather avoid, but is diversified and highly liquid
- AGGS - AGGG, but CHF-hedged, TER 0.1% - downside of being less liquid (at least several trades per day), but still liquid enough
- BNDW - AGGG, but USD-hedged and US-domiciled, TER 0.05% - downside of being USD-hedged, but is US-domiciled (better TER, lower bid-ask spread and highly liquid, etc.)
- IGLO - G7 government bonds, TER 0.2% - the kind of bonds I'm looking for, but is slightly less diversified (don't mind it much, I get the exposure I want)
- IGLC - IGLO but CHF-hedged, TER 0.25% - downside of being highly quite illiquid (e.g., some days there are 0 trades on this fund!!!)
- CSBGC3 / CSBGC7 / CSBGC0 - Swiss government bonds, 0-3 / 3-7 / 7-15 years, TER 0.15% - about as liquid as AGGS (at least several trades per day)