Tactical Asset Allocation + HBPP an intriguing combo

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

Post by ochotona » Sun Jul 29, 2018 5:45 am

HappyMan wrote:
Sat Jul 28, 2018 10:34 pm
Nice allocation! Keep thinking why did you chose 3-4 year bonds over, for example, 1 year or 10 year ones?
My criterion was: how much can I tolerate losing, emotionally, if interest rates were to rise? That's why I chose that duration. It's my pain threshold. Through the long bond fluctuations I have not had much discomfort, and on a point-forward basis, 4 year bonds are in the meaty, juicy part of the yield curve.

When GEM goes out of stocks, I may lengthen, however, anticipating more QE.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Kbg » Sun Jul 29, 2018 10:19 am

A rotational strategy using momentum and various types of bonds funds/ETFs works very well. To execute it you need a source of dividend adjusted prices...which will generally require a subscription and specialized software. Someone who may be interested and cheap might dig into Stockcharts.com to see if their prices are div adjusted.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sun Jul 29, 2018 2:33 pm

Morningstar.com and Stockcharts( Perfcharts) both report total return for free.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by HappyMan » Sun Jul 29, 2018 10:10 pm

ochotona wrote:
Sun Jul 29, 2018 5:45 am

My criterion was: how much can I tolerate losing, emotionally, if interest rates were to rise? That's why I chose that duration. It's my pain threshold. Through the long bond fluctuations I have not had much discomfort, and on a point-forward basis, 4 year bonds are in the meaty, juicy part of the yield curve.

When GEM goes out of stocks, I may lengthen, however, anticipating more QE.
Thank you for sharing your wisdom with us!
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Tue Jul 31, 2018 5:15 pm

Very important content from Gary and others. A must-read. This suggests dual momentum portfolios outperform in retirement.

https://www.dualmomentum.net/2018/07/mo ... t.html?m=1
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Wed Aug 01, 2018 5:28 am

No change to the GEM for August 2018. Still 100% in US stock ETFs like SCHX, IVV, VOO, etc.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Kbg » Wed Aug 01, 2018 8:58 am

ochotona wrote:
Tue Jul 31, 2018 5:15 pm
Very important content from Gary and others. A must-read. This suggests dual momentum portfolios outperform in retirement.

https://www.dualmomentum.net/2018/07/mo ... t.html?m=1

There are a lot of caveats behind the 4% rule and the study it was based on. One would be well advised to dive into the details. Draw downs make a big difference in the math of it all and even if trend following/Mo under performs a B&H allocation it definitely does a good job of trimming DDs.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Wed Aug 01, 2018 10:17 am

At least I'd feel quite confident about spending to the upper limit of the SWR for the corresponding non-momentum portfolio.
Last edited by ochotona on Wed Aug 01, 2018 5:08 pm, edited 1 time in total.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Kbg » Wed Aug 01, 2018 2:48 pm

After diving into this topic a while back I concluded it is an assumption laden minefield and it really comes down to your risk tolerance.

A very good conservative approach (highly conservative in fact with solid actuarial math behind it) is to simply use the RMD tables from the IRS. The downside is it back loads withdrawals which, given normal health and mortality trends, means you are likely overly frugal when your health is good and pulling out lots when you don't really get to enjoy it.
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Fri Aug 03, 2018 5:53 pm

I can dream, right?

The GEM pops out of stocks in 2019
Just as the 10 year Treasury hits 4%
Just as gold dives under $1000 because of the strong Dollar due to 4% bond yields

I rebalance gold back up to 10%, dump my stocks and go to bonds, and my retirement plan will work OK with 4% CAGR so who cares if no stocks?

After three years, in 2022, I buy back into the S&P500 at 1000. In the meantime, the banks did more QE, so my bond holdings have appreciated.

By 2026, my portfolio has doubled. I retire. The wheels fall off of the US Dollar due to trillion dollar deficits, gold goes to $5000 per ounce. Because I converted my IRA to Roth IRA, I escape most of the massively increased taxes needed to pay for Boomer retirement benefits.

I can dream, right?
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by Kbg » Fri Aug 03, 2018 10:21 pm

ochotona wrote:
Fri Aug 03, 2018 5:53 pm
I can dream, right?

The GEM pops out of stocks in 2019
Just as the 10 year Treasury hits 4%
Just as gold dives under $1000 because of the strong Dollar due to 4% bond yields

I rebalance gold back up to 10%, dump my stocks and go to bonds, and my retirement plan will work OK with 4% CAGR so who cares if no stocks?

After three years, in 2022, I buy back into the S&P500 at 1000. In the meantime, the banks did more QE, so my bond holdings have appreciated.

By 2026, my portfolio has doubled. I retire. The wheels fall off of the US Dollar due to trillion dollar deficits, gold goes to $5000 per ounce. Because I converted my IRA to Roth IRA, I escape most of the massively increased taxes needed to pay for Boomer retirement benefits.

I can dream, right?
https://www.youtube.com/watch?v=621Nk3Ubz4A
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Re: Dual Momentum GEM + HBPP a great combo, easy to test

Post by ochotona » Sat Sep 01, 2018 5:15 pm

No change to the GEM for September 2018. Still 100% in US stock ETFs like SCHX, IVV, VOO, etc.

In other threads, I expressed a desire to di-worse-ify into other types of funds available in my retirement plans that have very strong momentum, but I'm still going to use the SP500 momentum measurement as a risk kill-switch for all risk assets, when that moment arrives someday... the business cycle has not been outlawed.
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