Bills, Bonds and Cash - Where's the Risk:Return Sweet Spot?

Discussion of the Bond portion of the Permanent Portfolio

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Kevin K.
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Bills, Bonds and Cash - Where's the Risk:Return Sweet Spot?

Post by Kevin K. » Tue May 17, 2022 1:36 pm

Here's a good post by one of Morningstar's veteran writers about the performance of T Bills, ITT's and LTT's during all kinds of markets, with a particular focus on returns during market crises.

As you'll see, LTT's have by no means always been the best choice during such crises. The historical "sweet spot" has been 5 year ITT's but the author makes a pretty good case for half ITT's, half cash/TBills in the current market.

https://www.morningstar.com/articles/10 ... h-or-bonds
Kbg
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Re: Bills, Bonds and Cash - Where's the Risk:Return Sweet Spot?

Post by Kbg » Tue May 17, 2022 2:48 pm

+1 good article...I came to this same conclusion about a year and a half ago.
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joypog
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Re: Bills, Bonds and Cash - Where's the Risk:Return Sweet Spot?

Post by joypog » Wed May 18, 2022 8:27 am

Interesting! Quite convincing to see numbers instead of the theorizing of HBPP. It also falls in line with Bernstein's inclination to avoid ITT's and LTT's and keep the risk in equities.

Makes me wonder if I should change my future LTT purchases to be 5-year notes. The 5 year notes seem follow the 80/20 rule - 80% of the performance of LTT's for only 20% more risk than ITT's. Even though deflation is possible I am of the opinion that our centralized banks are way more likely to inflate than deflate.

With our rolling 1 year bills, I'd be pretty close to the article's recommendation of half and half if I shifted future LTT purchases towards 2-year notes....which would pretty much match Vanguard's Short VSBSX term fund, which averages in at 2.0 years for maturity.

This also lets me put the bond allocation in our taxable account - if we ever buy the damn house, I'd like to conserve as much of my equities while minimizing the mortgage by drawing down bonds, but it didn't make sense to put the volatile LTT's in a taxable account.
1/n weirdo. US-TSM, US-SCV, Intl-SCV, LTT, STT, GLD (+ a little in MF)
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