Desert Portfolio Question

General Discussion on the Permanent Portfolio Strategy

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Jeffreyalan
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Re: Desert Portfolio Question

Post by Jeffreyalan » Mon Jan 07, 2019 8:53 am

Kbg wrote:
Sat Jan 05, 2019 5:40 pm


I think funds like BIL or SHY are brilliant replacements for cash.
How do you feel about the safety of ETFS that hold Treasuries? I am contemplating keeping a stash of cash there and sucking up the .15 expense ratio instead of having to managing a 1-2 year treasury ladder.
Kevin K.
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Re: Desert Portfolio Question

Post by Kevin K. » Mon Jan 07, 2019 10:01 am

Jeffreyalan wrote:
Mon Jan 07, 2019 8:53 am
Kbg wrote:
Sat Jan 05, 2019 5:40 pm


I think funds like BIL or SHY are brilliant replacements for cash.
How do you feel about the safety of ETFS that hold Treasuries? I am contemplating keeping a stash of cash there and sucking up the .15 expense ratio instead of having to managing a 1-2 year treasury ladder.
Vanguard Federal Money Market fund has a current yield of 2.31% and an expense ratio of .11%. That'd be my first choice if I didn't want to do what I've been doing, which is buying 6 and 12 month Treasuries for no fee and just reinvesting when they come due.

William Bernstein and others categorically say there's no reason to ever pay a dime for Treasury bond funds of any duration but I'm not quite that cheap and understand the desire for convenience.

Vis-a-vis the various iterations of the Desert Portfolio, "intermediate" in Treasuries means 5 years, not 10 and that has been the historical sweet spot for risk/return. I understand the logic of the PP barbell but historically 5 year treasuries have offered as good or better a return with far less volatility. And there is no way I would own long treasuries in a rising-rate environment in which the starting point is negative real returns and with Treasuries constantly flirting with inverted yield curves. I'm keeping my entire bond allocation in 6-12 month Treasuries and have been for nearly a year and a half now. ~2.5% positive returns have made the simultaneous tanking of all other asset classes much easier to deal with.

If you can set aside the self-promotion and irritating ads this now 6 year old article by Todd Tresidder does an excellent job of showing just how dangerous bonds can be in a low interest rate/high volatility environment. Larry Swedroe sounds much the same warning in the just-published updated version of his book "Avoiding Black Swans."

https://financialmentor.com/investment- ... ubble/9064
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Kbg
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Re: Desert Portfolio Question

Post by Kbg » Mon Jan 07, 2019 11:01 am

Jeffreyalan wrote:
Mon Jan 07, 2019 8:53 am
Kbg wrote:
Sat Jan 05, 2019 5:40 pm


I think funds like BIL or SHY are brilliant replacements for cash.
How do you feel about the safety of ETFS that hold Treasuries? I am contemplating keeping a stash of cash there and sucking up the .15 expense ratio instead of having to managing a 1-2 year treasury ladder.
VGSH is .07%. And I think Schwabs is cheaper. That’s pretty cheap for the convenience. I have both treasury funds and a treasury direct account and while I like TD and use it, the fact is you can only buy in $100 increments and you buy at a discount and get full face value back. So for example you buy for 97.50 get 100 back and if you roll then you have 2.50 that you can’t do anything with.

If you go with one of the big ETF companies I wouldn’t have any concerns safety wise and as mentioned it becomes cost vs hassle factor.

For me I like the etf version in a brokerage that reinvests dividends with fractional shares...but I would not argue against TD at all. Really it’s a matter of preference and cost for convenience.
Jeffreyalan
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Re: Desert Portfolio Question

Post by Jeffreyalan » Mon Jan 07, 2019 6:39 pm

Kbg wrote:
Mon Jan 07, 2019 11:01 am
Jeffreyalan wrote:
Mon Jan 07, 2019 8:53 am
Kbg wrote:
Sat Jan 05, 2019 5:40 pm


I think funds like BIL or SHY are brilliant replacements for cash.
How do you feel about the safety of ETFS that hold Treasuries? I am contemplating keeping a stash of cash there and sucking up the .15 expense ratio instead of having to managing a 1-2 year treasury ladder.
VGSH is .07.

If you go with one of the big ETF companies I wouldn’t have any concerns safety wise and as mentioned it becomes cost vs hassle factor.

I was looking at shorter duration ETFs like BIL or GBIL. I understand the mechanisms behind ETFS but still have some nervousness (probably unfounded) about putting a huge chunk of my savings into them.
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Kbg
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Re: Desert Portfolio Question

Post by Kbg » Mon Jan 07, 2019 9:12 pm

Jeffreyalan wrote:
Mon Jan 07, 2019 6:39 pm
Kbg wrote:
Mon Jan 07, 2019 11:01 am
Jeffreyalan wrote:
Mon Jan 07, 2019 8:53 am


How do you feel about the safety of ETFS that hold Treasuries? I am contemplating keeping a stash of cash there and sucking up the .15 expense ratio instead of having to managing a 1-2 year treasury ladder.
VGSH is .07.

If you go with one of the big ETF companies I wouldn’t have any concerns safety wise and as mentioned it becomes cost vs hassle factor.

I was looking at shorter duration ETFs like BIL or GBIL. I understand the mechanisms behind ETFS but still have some nervousness (probably unfounded) about putting a huge chunk of my savings into them.
While they are not very fun or interesting to read, I recommend reading the full prospectuses of the ETF s you are considering. I would be cautious about going too short in duration with a fund. At least with the data I have and on Mornignstar, BIL lost a small percent for six years in a row as fees were higher than interest received and SHV basically returned nothing.

If you are nervous about treasury ETFs then go with CDs at a bank where you have FDIC insurance backing.
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