Tactical Asset Allocation + HBPP an intriguing combo

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InsuranceGuy
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Sun Jun 03, 2018 11:06 am

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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by D1984 » Mon Jun 04, 2018 5:56 pm

InsuranceGuy wrote:
Sun Jun 03, 2018 11:06 am
D1984 wrote:
Sun Jun 03, 2018 5:47 am
I can try and copy them from my Excel spreadsheet to post here but I'd rather just post the whole spreadsheet and let everyone download it. Is it possible to actually attach a small .XLS file on this forum or do I need to have it hosted somewhere else?
I'd be interested in your pre-1970 International findings by scraping Morningstar. I don't believe you can post an excel spreadsheet but you could paste the results in google sheets and post a link to that. You can only PM an excel spreadsheet I believe.
D1984 wrote:
Sun Jun 03, 2018 5:47 am
Now I am only missing one more thing to complete the backtest: Monthly intermediate-term Treasury bond returns so as to simulate an intermediate-term bond fund. Morningstar has the Ibbotson Intermediate-Term Government Bond and Ibbotson Intermediate-Term Corporate bond monthly returns back to at least 1962 monthly and 1926 annually but subscribing to their Encorr or Principia or corporate memberships cost thousands of dollars which means I don't have access to them. I do have daily 5-year Treasury yields back to 1-1-1962 so if someone could create and post a spreadsheet that can compute monthly returns based on changes in interest rates over the month then that would give as a fairly accurate approximation of an intermediate-term government bond fund monthly return series. I am aware that I could just use Treasury bills as the "switch into when stocks haven't outperformed T-bills over the past twelve months" asset but that would be kind of cheating since this was a time of rising rates and thus intermediate bonds would have done slightly worse than T-bills and I want the backtest to fully reflect that (plus Mr. Antonacci's backtest on the GEM webpage used intermediate-term bonds and I want to replicate his methodology as closely as possible).

Can someone please help with the bond returns data? Thank you.
To synthesize Intermediate-Term Government Bond returns I just assumed every day I bought a bond with the 5-year Treasury yield then sold it the next day. The formula is messy so I created an easy google sheets doc here: https://docs.google.com/spreadsheets/d/ ... sp=sharing

The results match very closely to all of the big names out there: Compustat, Ibbotson, Portfolio Visualizer, etc.
InsuranceGuy,

Google sheets was being a pain so I just uploaded the .XLS file itself; it can be downloaded at:

http://s000.tinyupload.com/?file_id=013 ... 0901719899

This is the data chart-scraped from Morningstar for 1962 through 1969 then the EAFE TR for 1970 (for foreign stocks) and the S&P 500 TR (for US stocks).

Also, thank you for that spreadsheet on Google sheets showing monthly bond returns. It seems your results show slightly better returns for the rising rate period of 1965 to 1969 than the Bogleheads spreadsheet for intermediate-term bonds but that makes sense since they used a weighted average of 4 to 10 year bonds with a rough maturity of 6.9 or 7 years whereas yours was for bonds with a five-year maturity
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by InsuranceGuy » Mon Jun 04, 2018 8:15 pm

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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Jun 29, 2018 6:59 pm

No change to the portfolio for July 2018. Still 100% in S&P 500 stocks.

My cautious 45% GEM, 10% gold, 20% cash, 25% bond (duration 4 years) portfolio is up 1% for the year.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Fri Jun 29, 2018 11:26 pm

ochotona wrote:
Fri Jun 29, 2018 6:59 pm
No change to the portfolio for July 2018. Still 100% in S&P 500 stocks.

My cautious 45% GEM, 10% gold, 20% cash, 25% bond (duration 4 years) portfolio is up 1% for the year.
Hi,

What guides you when you are picking bonds? Some prefer short term, 6m to a year, some long-term, 10 years. Somewhat surprised to see a 4 year one.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jun 30, 2018 4:58 am

I follow Kathy Jones' advice. She is the bond strategist at Schwab. She advised a long time ago to go to 3-5 year durations. Now she's thinking about adding more duration. Follow her @kathyjones on Twitter.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sat Jun 30, 2018 7:12 am

ochotona wrote:
Sat Jun 30, 2018 4:58 am
I follow Kathy Jones' advice. She is the bond strategist at Schwab. She advised a long time ago to go to 3-5 year durations. Now she's thinking about adding more duration. Follow her @kathyjones on Twitter.
Great! Thanks for the reference. When I talked to Schwab about treasuries and ask for an advice, they basically told me to come back when I have at least a half of a mil. How often does she tweet an actual advice?

Do you hold to expire or sell/buy every once in a while?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by jhogue » Sat Jun 30, 2018 1:23 pm

Talk to someone else at Schwab.

I buy both LTTs and STTs through my Fidelity brokerage account. Fidelity's minimum bond purchase is $1,000. The Bond Desk will talk to you over the phone if you have questions. I think Vanguard has roughly the same deal. Even though Treasury bonds are liquid and can be sold at any time, I aim to hold them until maturity.

I also recommend that you read Gumby's tutorial on the Bond board before buying bonds online at Fidelity.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jun 30, 2018 9:08 pm

HappyMan wrote:
Sat Jun 30, 2018 7:12 am
Great! Thanks for the reference. When I talked to Schwab about treasuries and ask for an advice, they basically told me to come back when I have at least a half of a mil. How often does she tweet an actual advice?
Do you hold to expire or sell/buy every once in a while?
Here's the actual page where bond advice is posted: https://www.schwab.com/resource-center/ ... d-insights

Someone told you you have to have $500,000 in order to get help from the Schwab bond desk? That's not right. They'll talk to any customer as far as I know.

I used to own only ETFs, but now I'm buying individual bonds and holding them to maturity. Short-term Treasuries and high quality corporates. It has been a good experience.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sat Jun 30, 2018 10:13 pm

ochotona wrote:
Sat Jun 30, 2018 9:08 pm

Here's the actual page where bond advice is posted: https://www.schwab.com/resource-center/ ... d-insights

I used to own only ETFs, but now I'm buying individual bonds and holding them to maturity. Short-term Treasuries and high quality corporates. It has been a good experience.
Appreciate the link. You are very helpful!

That's the other thing. Should one invest in bonds (2-3%) or in related ETFs, like PFF, for example (3-4%)?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sun Jul 01, 2018 4:52 am

I stay away from high risk fixed income like PFF. Look what it did during 2097-2009. Very scary.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sun Jul 01, 2018 7:23 am

jhogue wrote:
Sat Jun 30, 2018 1:23 pm
Talk to someone else at Schwab.

I buy both LTTs and STTs through my Fidelity brokerage account. Fidelity's minimum bond purchase is $1,000. The Bond Desk will talk to you over the phone if you have questions. I think Vanguard has roughly the same deal. Even though Treasury bonds are liquid and can be sold at any time, I aim to hold them until maturity.

I also recommend that you read Gumby's tutorial on the Bond board before buying bonds online at Fidelity.
Thank you for recommending a tutorial. I guess it applies to bonds at Schwab as well.

Where can one find this guide? Googling has not brought satisfying results.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by jhogue » Sun Jul 01, 2018 7:40 pm

See "Treasury Bond Buying Tutorial," the first thread under "Bonds"

or:

viewtopic.php?f=3&t=1670
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sun Jul 01, 2018 10:00 pm

jhogue wrote:
Sun Jul 01, 2018 7:40 pm
See "Treasury Bond Buying Tutorial," the first thread under "Bonds"

or:

viewtopic.php?f=3&t=1670
Thank you. Will look at it.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Mon Jul 02, 2018 12:52 am

jhogue wrote:
Sun Jul 01, 2018 7:40 pm
See "Treasury Bond Buying Tutorial," the first thread under "Bonds"

or:

viewtopic.php?f=3&t=1670
I've read that guide a couple of months ago along with the FAQ. After that I purchased my first bond with Schwab.

What would you recommend to read to someone after that? Just stick to a pro like that woman from Schwab? I'm interested in strategic buying of bonds. Would be good to familiarize myself with different strategies.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Tue Jul 03, 2018 5:57 pm

Marilyn Cohen, "The Little Bond e-Book"
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Wed Jul 04, 2018 9:31 am

ochotona wrote:
Tue Jul 03, 2018 5:57 pm
Marilyn Cohen, "The Little Bond e-Book"
Nice! Currently free for Kindle.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by jhogue » Wed Jul 04, 2018 1:04 pm

Let the buyer beware! Marilyn Cohen is promoting the sale of municipal and corporate bonds in this book. These are not suitable for the HBPP.

1. Anyone tempted to buy munis because they are free of federal, state, and local taxes should read up on Puerto Rico and Chicago or ask pug chief for a tutorial on fiscal finance in the Land of Lincoln.

2. As for corporate bonds, about 20 years ago, I took Marilyn Cohen's advice (she writes a bond column for Forbes) and bought some really neat GMAC zero coupon bonds with a coupon of 7.65%. They tanked during the 2008-2009 recession, and while I eventually got out at a profit, it was a wild ride while GMAC was being bailed out by TARP and then converted into Ally Bank. Trust me, you don't want to go for that ride. Bonds should be boring, not exciting.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Wed Jul 04, 2018 1:54 pm

jhogue wrote:
Wed Jul 04, 2018 1:04 pm
Let the buyer beware! Marilyn Cohen is promoting the sale of municipal and corporate bonds in this book. These are not suitable for the HBPP.

1. Anyone tempted to buy munis because they are free of federal, state, and local taxes should read up on Puerto Rico and Chicago or ask pug chief for a tutorial on fiscal finance in the Land of Lincoln.

2. As for corporate bonds, about 20 years ago, I took Marilyn Cohen's advice (she writes a bond column for Forbes) and bought some really neat GMAC zero coupon bonds with a coupon of 7.65%. They tanked during the 2008-2009 recession, and while I eventually got out at a profit, it was a wild ride while GMAC was being bailed out by TARP and then converted into Ally Bank. Trust me, you don't want to go for that ride. Bonds should be boring, not exciting.
This is a VP discussion.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by jhogue » Wed Jul 04, 2018 2:19 pm

Yeah, I know.

My caveat emptor about munis and corporate bonds applies to holders of VPs as well as more orthodox holders of the HBPP.

Are you recommending investors buy munis and corporate bonds?
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Wed Jul 04, 2018 3:12 pm

jhogue wrote:
Wed Jul 04, 2018 2:19 pm
Yeah, I know.

My caveat emptor about munis and corporate bonds applies to holders of VPs as well as more orthodox holders of the HBPP.

Are you recommending investors buy munis and corporate bonds?
I don't make any recommendations to anyone.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sun Jul 08, 2018 7:57 am

A reminder about why this thread exists:

2005-Today performance (because GLD doesn't go back further)

HBPP
CAGR 6.74%
MaxDD -12.59%
Sharpe 0.84
US Mkt correlation 0.39

GEM
CAGR 8.73%
MaxDD -17.72%
Sharpe 0.72
US Mkt correlation 0.66

50% HBPP + 50% GEM
CAGR 7.80%
MaxDD -11.12%
Sharpe 0.92
US Mkt correlation 0.66

The blend has lower drawdown, higher Sharpe ratio, 1% higher return, and it's still relatively lazy (look once a month; trade a few times per year). What's not to like? (But I don't recommend it to anyone. Make your own decisions).

GEM uses SWPPX, SWISX, and VFITX is the risk-off asset
HBPP uses SWPPX, GLD, TLT, and Cash
Last edited by ochotona on Sun Jul 08, 2018 12:59 pm, edited 1 time in total.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sun Jul 08, 2018 8:51 am

Nice summary, Ochotona! Thanks for your work!
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Jul 28, 2018 7:24 pm

FYI, this is where I am now:

10% cash (90 day T-Bills, Ally Bank)
10% gold
10% TIPS (I put I-Bonds in the TIPS bucket)
25% core bonds with 4 year duration (Treasuries, Total Bond Market, Short Term High Quality Corporates - no junk, no EM, no preferreds)
45% GEM

This is sleep well at night portfolio for sure. :)
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sat Jul 28, 2018 10:34 pm

ochotona wrote:
Sat Jul 28, 2018 7:24 pm
FYI, this is where I am now:

10% cash (90 day T-Bills, Ally Bank)
10% gold
10% TIPS (I put I-Bonds in the TIPS bucket)
25% core bonds with 4 year duration (Treasuries, Total Bond Market, Short Term High Quality Corporates - no junk, no EM, no preferreds)
45% GEM

This is sleep well at night portfolio for sure. :)
Nice allocation! Keep thinking why did you chose 3-4 year bonds over, for example, 1 year or 10 year ones?
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