Hand Holding

[buddtholomew]

Currently manage fixed income duration to 5.6 years by holding additional cash.
Now at the point that I have too much cash, roughly 40%
PP is 20/20/20/40.
Would like to transition to 4x25, which involves buying stocks, gold and bonds.

Struggling with investing additional cash into portfolio with the PP doing so well. Logically I should make the move but second guessing a wrong decision does not sound appealing. Sophie...help

[drumminj]

Things have dropped quite a bit in the past few weeks (gold, treasuries, bonds). Seems like a better time to move out of cash than it was two weeks ago at least no?

[curlew]

Currently manage fixed income duration to 5.6 years by holding additional cash.
Now at the point that I have too much cash, roughly 40%
PP is 20/20/20/40.
Would like to transition to 4x25, which involves buying stocks, gold and bonds.

Struggling with investing additional cash into portfolio with the PP doing so well. Logically I should make the move but second guessing a wrong decision does not sound appealing. Sophie...help

You can correct me if I'm wrong but I thought I read somewhere that you were talking about something around a 4 million dollar portfolio.

I was just forced to retire last month with my own portfolio about 8k less than 1 million $.

So when the recent downturn came I went fishing. I'll check back later.

[buddtholomew]

Drumminj, yes we have had a minor drawdown over the last few weeks, but the portfolio still has strong gains YTD.

Curlew, withdrawal rate is more important than net worth and our portfolio would not cover 25x annual expenses.

Thinking about cash as portfolio drag and a portion should be allocated to the 3 volatile assets.

[sophie]

So when the recent downturn came I went fishing. I'll check back later.

Thank you curlew! Thankfully, no keyboards were harmed, but I did get a good laugh out of it.

If you're about ready to rebalance out of cash or make a big cash contribution, though, waiting until the PP has dropped a bit isn't a bad idea. Realizing of course, that you don't know if it will drop more before going back up. Budd, are you thinking of reducing your big cash stake? If you've been happy with your setup so far, you might want to just stick with what you've got.

[ochotona]

Put in limit orders for the prices you want to pay, then see if Christmas comes early

[barrett]

Currently manage fixed income duration to 5.6 years by holding additional cash.
Now at the point that I have too much cash, roughly 40%
PP is 20/20/20/40.
Would like to transition to 4x25, which involves buying stocks, gold and bonds.

Hey Budd, I forget your exact reasoning for "managing duration" so that it stays at 5.6 years. I think I remember that you are trying to match the duration of a particular bond fund, no? Total Bond Market? Anyway, I thought it was by design that you held extra cash. If one used TLT with a duration of about 17.2, one would have to hold about twice as much cash in dollar terms to get to that 5.6-year target. So are you just not happy with your strategy anymore? It just seems to me that 20/20/20/40 is about where you would end up by following your duration managing strategy.

And inflation has been really low since 2009 so holding a bunch of cash is not really a big deal. Yeah, it creates "drag" if other assets are going up but we don't know what's going to happen from here.

[buddtholomew]

Thank you for your input.
Maintaining a 5.6 year fixed income duration to replicate total bond market index (VBTIX, BND ETF) WAS the objective.
As the portfolio grows, one begins to question whether holding too much cash in order to maintain the target duration makes sense.
The construction looks similar to the Desert portfolio IT-Treasury allocation (60%, bullet), but somehow the cash in a barbell seems like idle opportunity.

Perhaps I won't feel the same way if we continue to experience a pullback in the PP.

[MachineGhost]

Currently manage fixed income duration to 5.6 years by holding additional cash.
Now at the point that I have too much cash, roughly 40%
PP is 20/20/20/40.
Would like to transition to 4x25, which involves buying stocks, gold and bonds.

Struggling with investing additional cash into portfolio with the PP doing so well. Logically I should make the move but second guessing a wrong decision does not sound appealing. Sophie...help

DCA equal amounts each month over 2.5 years. That's what you really fear, the historical drawdown period.

[MachineGhost]

Hey Budd, I forget your exact reasoning for "managing duration" so that it stays at 5.6 years. I think I remember that you are trying to match the duration of a particular bond fund, no? Total Bond Market? Anyway, I thought it was by design that you held extra cash. If one used TLT with a duration of about 17.2, one would have to hold about twice as much cash in dollar terms to get to that 5.6-year target. So are you just not happy with your strategy anymore? It just seems to me that 20/20/20/40 is about where you would end up by following your duration managing strategy.

And inflation has been really low since 2009 so holding a bunch of cash is not really a big deal. Yeah, it creates "drag" if other assets are going up but we don't know what's going to happen from here.

He would need more TLT not twice as much cash:

17.2 * 25% = 4.6.
.9 * 25% = .225.
Total = 4.825.

Budd would be well advised to track UUP to see the real value of cash going up and down. It is anything but static.

[buddtholomew]

I track UUP daily but pay my expenses in USD.

Not sure what MG is calculating, but more cash decreases fixed income duration.

[MachineGhost]

I track UUP daily but pay my expenses in USD.

Not sure what MG is calculating, but more cash decreases fixed income duration.

I'm calcuating PP as is, not sure what bartlett was doing. If you're 40% cash you're definitely lower than 4.825. Which isn't a bad thing if rates start to rise. Fed decides this Wednesday but I wonder how often they do something right before an election. They may want to avoid appearance of impropriety.

And time for another classic song...

https://www.youtube.com/watch?v=0LyUCy3eOvs

[buddtholomew]

I track UUP daily but pay my expenses in USD.

Not sure what MG is calculating, but more cash decreases fixed income duration.

I'm calcuating PP as it, not sure what bartlett was doing. If you're 40% cash you're definitely lower than 4.825.

And time for another classic song...

https://www.youtube.com/watch?v=0LyUCy3eOvs

I think I know where the difference is.
MG, is cash considered 0 or 1 duration in your calcs?
I personally count as 0.

[MachineGhost]

I think I know where the difference is.
MG, is cash considered 0 or 1 duration in your calcs?
I personally count as 0.

Cash is 0. 1 year T-Bills is .9. Browne advocated T-Bills not cash. We're very sloppy with the term around here.

Unless it can flunctuate on a secondary market, I don't think there's a point in including the duration for other forms of "cash" as anything but .9. What you don't know will be good for you!

[Reub]

Well Yellen spoke and everything popped higher. Thanks, Janet!

[Cortopassi]

It is funny. Everyone, esp. Zero Hedge complains about the Fed but every time they meet, everything seems to go up!

[barrett]

It is funny. Everyone, esp. Zero Hedge complains about the Fed but every time they meet, everything seems to go up!

IMHO it sure doesn't bode well for stocks over the medium term (say 3-5 years) if investors feel we need to be in a near-ZIRP environment for them to do well. Every time there is a hint that the FED might raise rates, stocks tumble a bit.

The real mystery to me is why the gold price seems to respond well to the FED holding rates down. But I am not complaining. Back to budd's OP though... If the stock and LTT markets are this sensitive to a potential 1/4 point rise in rates, holding some extra cash may not be such a bad idea. On any significant move up in rates, I would expect long bond and stock prices to go down. Maybe gold as well.

Of course, one could easily argue that at 25%, a PPer already holds "extra cash."

[MachineGhost]

The real mystery to me is why the gold price seems to respond well to the FED holding rates down. But I am not complaining. Back to budd's OP though... If the stock and LTT markets are this sensitive to a potential 1/4 point rise in rates, holding some extra cash may not be such a bad idea. On any significant move up in rates, I would expect long bond and stock prices to go down. Maybe gold as well.

Of course, one could easily argue that at 25%, a PPer already holds "extra cash."

The trick is to increase the FFR so slowly and minorly that investors don't go all "risk off"; then you can buy the corrections since the Fed wouldn't raise the FFR unless the economy was actually growing, right? Uninformed investors are addicts wedded to the faux idea of "money printing flowing into the stock market" by the Wizard Creature of Oz. It's all a confidence game of managing expectations.

I have 0% exposure to T-Bonds. It is a race right now whether we're gonna have another "risk off" period that benefits T-Bonds before the sovereign debt starts imploding. Check out Japan's new "quantitative and qualitative easing with yield curve management" (EAQEWYCM) bullshit. At some point sooner or later, confidence is going to be completely lost in central banks and governments. You don't want to be a bagholder if you can't afford the downside risk.

[buddtholomew]

I bought more TLT on Tuesday from cash to restore AA.
With a score like 17, I know why I couldn't pull the trigger to move from 20/20/20/40 to 4x25.
What concerns me is the assets moving in lockstep.
All pulled back in advance of the FED meeting and all have advanced since the decision to hold the FFR.

MG, if you don't hold LTT, what do you use for deflation protection? Last I checked TLT is + 40%+ since 2011 (excluding reinvestment). Just saying...

[MachineGhost]

MG, if you don't hold LTT, what do you use for deflation protection? Last I checked TLT is + 40%+ since 2011 (excluding reinvestment). Just saying...

Cash for now, but I am likely going to use a composite of different funds that would benefit when Prosperity ends, including TLT. I think putting everything into TLT is risky at the tail end of a gigantic bond bubble. Who can tell what will ensure in the resulting crazyness? We're in historically unprecedented times.

40%+ may sound great until you realize you have to use those gains to offset losses in the other assets ... and only 25% of it. That's kind of the bum deal with the PP that I can't stand... you hold onto losers, rather than avoid them outright. Did I mention I'm risk phobic?

[buddtholomew]

MG, if you don't hold LTT, what do you use for deflation protection? Last I checked TLT is + 40%+ since 2011 (excluding reinvestment). Just saying...

Cash for now, but I am likely going to use a composite of different funds that would benefit when Prosperity ends, including TLT. I think putting everything into TLT is risky at the tail end of a gigantic bond bubble. Who can tell what will ensure in the resulting crazyness? We're in historically unprecedented times.

40%+ may sound great until you realize you have to use those gains to offset losses in the other assets ... and only 25% of it. That's kind of the bum deal with the PP that I can't stand... you hold onto losers, rather than avoid them outright. Did I mention I'm risk phobic?

There's a benefit to accumulating in cash when one or more assets have declined in value.

We all know buying the winners and avoiding the losers is impossible. Yet we try...

[dragoncar]

25 basis points is too much for a single raise. Just do 5 bp and nobody will bat an eye. If they did 5bp each quarter this year we'd almost be at 1/4 point and no overreaction. Boil the frog

[InsuranceGuy]

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[MachineGhost]

A little surprising that you are out of TLT as most of the momentum strategy scenarios I have tested assign weight to TLT starting May (which has worked out well with the Brexit). My personal portfolio is currently 50% TLT/50% non-PP non-cash asset.

I'm sure that at some point interest rates will go up, but until then it seems like TLT is humming along with good returns. Until then I just locked 2.875% for 15 years on my mortgage.

It was a subjective override. I don't feel like suffering a peak-to-sell signal when I have no guarantee I'll make back the losses anytime soon. The panic period when everyone sells everything and their mother for cash can be brutal. Remember last Friday? That was but a small taste.

[InsuranceGuy]

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