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Discussion Starter · #1 ·
Hi,
I have been a DIY investor for some time. My portfolio has been 60/40 stocks/bonds mix. Now that I have just bought my first home, I wonder if I should bother with bonds. My mortgage is fixed for two years at 2.4%. My bond ETF portfolio is probably yielding about 1.4% after fees, etc. My stocks pay about 4% in dividends so I would rather keep them, but bonds don't really make sense. Especially now they have gone up so much in prices, the risk seems high but doesn't seem to provide benefits. Should I sell bonds/stop buying bonds, and pay down mortgage? It's scary to have all stock portfolio though.
What are your thoughts? I have heard about Smith Maneuver. Wonder if that is something I should look into... Thank you!
 

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I wouldn't bother with the Smith Maneuver, it's easy to make a misstep on your taxes, and leverage can be painful in a market correction. In addition, if you are buying bonds with a loan, you can only write off the amount of the interest equal to what the bonds yield, so why bother? Paying off the mortgage is 100% guaranteed, and is your best bet at this time.
 

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I fully endorse paying down mortgage debt by selling bonds. Holding mortgage debt and significant bond assets is a wasteful drain. The interest on the mortgage is more than the YTM on the bonds (if they are reasonable credit quality). The only benefit is of holding bonds is that they are something to sell if you are in financial difficulty while pulling money out of your house might be more difficult.
 

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I also wouldn't bother with the SM. If you're going to start this process, best buy when the market is low (not near all-time highs).

Like other comments, paying down your mortgage has a guaranteed rate of return. Pay it down :)
 

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Discussion Starter · #6 ·
I have bought some TLT (US long bonds) ETF when CAD was at par and They have gone up so much because of currency as well as bond rally. Also TLT is great reducing stock volatility so I want to keep them. But Canadian bond ETF, such as VAB, XQB don't go up much when stocks tank, not only their real yields are quite bad. Corporate bonds like CBO haven't done well either. These are the ones I do want to get rid of to pay down mortgage. But i would be quite heavy on stocks if I make the move. If I have a long term horizon, like 20years, do I need to worry?
 

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Personally, I don't hold much in bonds, but it's up to you to decide what your comfort level is with your stock/bond ratio. I would say that since you have a fairly lengthy time to retirement, a 60/40 split is rather conservative.
 

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Discussion Starter · #8 ·
I'm 42 soon. If I am aiming 30/70 split (bonds/stocks), that wouldn't be too aggressive right?

Also, it would be nice to pay off mortgage early instead of investing, but if I wait until I pay off mortgage, I will not not be probably very conservative with my investing as I will have less time before retirement. Now I don't feel too nervous holding stocks as I will not sell them for at least 20 years.
 

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I would say for 42, depending upon your investing goals, 30% bonds is rather conservative.

Most people holding bonds now, because there is very little upside, are holding them for "parachutes" in their portfolio if/when the market crashed again. They are not likely holding them for long-term gains. At least I hope not.
 
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