The Bond Purchase Question!
Posted: Tue Oct 08, 2019 8:46 pm
In my quest here to accumulate all the information I need to complete the details of my plan to fully invest in the Permanent Portfolio, I'm seeing clearly with three of the investments:
1) Stock - Vanguard Total Stock Market Fund
2) Cash - Vanguard Treasury Fund or ladder of T-Bills
3) Gold - Combination of ETFs and gold coins
But the Bond portion has two major questions....(and, that is AFTER putting aside the fear that Bonds COULD be at a high).
Assume I was investing $400,000 total. That would be $100,000 in each investment.
Now assume that at a future date I now have $140,000 in bond value and $86,667 in each of the other three investments.
I am now supposed to sell $40,000 worth of bonds and buy $13,333 of each of the other investments.
However, if I bought one T-Bond for $100,000 which is now worth $140,000 what am I doing? Am I selling the entire bond and then buying a new one for $100,000 since you cannot just sell part of a bond? Or, was I supposed to have originally bought four $25,000 bonds? Tonight I reread in Craig / Tex's book about buying the bonds and while the book is incredibly detailed in just about every other area there is zero detail regarding what I am asking here.
Second question. I buy a bond for $100,000 (or four at $25,000) which are now paying about 2% and the bonds are for thirty years. If these bonds do go down in value I am holding them for a full ten years (since that is when they get down to only being for twenty years)?
Doesn't that leave one in somewhat of almost a market timing position? I'm buying today and selling on one day exactly ten years later? Just those two data points are going to determine whether or not I made a good or bad investment? And, if interest rates end up being consistently higher during those ten years than my initial rate then I'm getting interest income at a real rate that is less that the present real rate for the entire ten year period?
I'm an experienced holder of cash / equities / gold. But my ONLY bond holding has been the Vanguard Short Term Investment Grade, which parallels the current interest rate scene.
To just make one bond purchase and then sell it exactly ten years to the day later seems to be a major bet / gamble. Unlike any other investment I have ever prior made.
And, now getting back to the current bond "high". Buying a bond when the interest rate is presently so low (less than 2.0%) it seems that the only way I can make money during the next ten years on this bond purchase is if there is some serious deflation which drives interest rates even lower.
I can well see how the stock and gold investments can lead to big major gains going forward. It's quite cloudy to me how buying the bonds at today's rates has any kind of probabilities of providing significant gains in the future to offset any losses on either stocks or gold or both.
1) Stock - Vanguard Total Stock Market Fund
2) Cash - Vanguard Treasury Fund or ladder of T-Bills
3) Gold - Combination of ETFs and gold coins
But the Bond portion has two major questions....(and, that is AFTER putting aside the fear that Bonds COULD be at a high).
Assume I was investing $400,000 total. That would be $100,000 in each investment.
Now assume that at a future date I now have $140,000 in bond value and $86,667 in each of the other three investments.
I am now supposed to sell $40,000 worth of bonds and buy $13,333 of each of the other investments.
However, if I bought one T-Bond for $100,000 which is now worth $140,000 what am I doing? Am I selling the entire bond and then buying a new one for $100,000 since you cannot just sell part of a bond? Or, was I supposed to have originally bought four $25,000 bonds? Tonight I reread in Craig / Tex's book about buying the bonds and while the book is incredibly detailed in just about every other area there is zero detail regarding what I am asking here.
Second question. I buy a bond for $100,000 (or four at $25,000) which are now paying about 2% and the bonds are for thirty years. If these bonds do go down in value I am holding them for a full ten years (since that is when they get down to only being for twenty years)?
Doesn't that leave one in somewhat of almost a market timing position? I'm buying today and selling on one day exactly ten years later? Just those two data points are going to determine whether or not I made a good or bad investment? And, if interest rates end up being consistently higher during those ten years than my initial rate then I'm getting interest income at a real rate that is less that the present real rate for the entire ten year period?
I'm an experienced holder of cash / equities / gold. But my ONLY bond holding has been the Vanguard Short Term Investment Grade, which parallels the current interest rate scene.
To just make one bond purchase and then sell it exactly ten years to the day later seems to be a major bet / gamble. Unlike any other investment I have ever prior made.
And, now getting back to the current bond "high". Buying a bond when the interest rate is presently so low (less than 2.0%) it seems that the only way I can make money during the next ten years on this bond purchase is if there is some serious deflation which drives interest rates even lower.
I can well see how the stock and gold investments can lead to big major gains going forward. It's quite cloudy to me how buying the bonds at today's rates has any kind of probabilities of providing significant gains in the future to offset any losses on either stocks or gold or both.