Gyroscopic Investing

Not sure I can really answer these questions to everyone’s satisfaction.

Structural...illiquidity of the underlying bonds in the ETFs that could cause a serious price dislocation if the ETF has to sell quickly and heavily due to redemptions. Many bond ETF’s daily trading value greatly exceed their underlying portfolio value. I’m not going to go into it here, but if you understand how large scale ETF share blocks can be created and redeemed for the underlying then this issue isn’t difficult to understand.

Returns and value...your critique is exactly his point. Some math is easy. Notional example. inflation 2%, bond yield -.5%, real return is a guaranteed -2.5% and thus there is really no rational economic reason to purchase these bonds. (Och, you inferred a lot of things I never said about bond quality types)

In reaction he recommends a couple of things.

- if you can ride out the volatility, buy/hold something that has a better chance of providing an actual real return over a longer period of time (he’s written about several options one could do here. One example, buy WFC-L preferred)

- hold cash, not bonds. Simple math again...lose “only” 2% vs 2.5% per year

- if you are going to hold bonds, then hold US treasuries only

- he’s a big non-fan of LT bonds of any sort

As mentioned, his perspective is as a value investor and he sees very low or negative value with the vast majority of bonds these days. mathematically his argument is as bulletproof as it gets. Using the latest inflation and 10Y T yield data and assuming no inflation changes for 10 years you are locking in a 1.1 real return. His view would simply be, if that’s your hold period you could do a lot better with other options that are relatively safe.

He’s not a huge fan of US stock index funds either for valuation reasons (at this point in time).

Anyway, just sharing a perspective from a guy I respect who isn’t selling something.

Very relevant to our tangent and what I just posted on. Normally I wouldn't post anything from this source, but hey, it's an excerpt from someone else...

https://www.zerohedge.com/news/2019-07- ... ell-stocks

Maybe I should have posted this in the Gold part of the forum.

Haha, well that's not the typical Zero Hedge article. They just basically shared Dalio's post on LinkedIn.

There are potential structural issues with any ETF. I personally would rather hold individual assets where possible, but sometimes you just can't avoid it. By the same logic you would also avoid stock ETFs.

Maddy, please don't worry about Vanguard's Treasury MM. It is 99% 1 month T bills, so it's sort of like a crowdsourced 1 month T bill with autoroll, all automated for your convenience and with extremely low overhead. There's very little room in there for playing games.

If you want to avoid the 0.09% expense ratio, you could put part of the money directly into T bills. Or into a CD. Which will require predicting when you might be using the cash, because it's not worth doing that if you have to sell before maturity.

+1 on Sofie’s comments. You don’t need to sweat a Treasury ETF/MMF IIRC US treasuries are the largest single market on the planet.