coping with a LTT bear market
Posted: Wed May 18, 2022 8:23 pm
It's interesting to read all the posts about bonds that ask how to compensate for the crash we've witnessed, sentiment seems to be extremely poor. I see ideas floating around such as switching to lower duration bonds , abandoning the permanent portfolio 4x25% structure, going international etc. Is every one of these approaches not an attempt at market timing and trying to "game the system", the exact thing we are not supposed to do by the permanent portfolio philosophy?
If it helps anyone struggling with the LTT and stock bear market, I can say the following-
1. We have no clue what will happen in 3 months, 6 months or a year. Inflation "could" settle down and the Fed goes QE crazy again to stimulate growth, who knows? Conversely we could go into a horrible stagflation for the next decade and only gold/cash will keep us afloat. It would be gambling to place a bet on one side or the other and the PP has natural mechanisms to prevent wild fluctuations.
2. Correlations, YTD and short term figures are scary and sometimes deceiving. Yes stocks and bonds are going down together short term, but there are hours, days, weeks and quarters like that. It's highly unlikely the figures will look the same at year end or in a longer timeline.
3. Bond interest offsets the apparent capital loss , in my own portfolio I'm calculating about 4-5 years compounded bond interest to break even from the 20% down so far this year.
For those in the accumulation phase-
4., averaging in of new LTT funds can substantially raise portfolio yield
5. In any sector, a bear market is what you want. Everything is on sale, cheap shares, cheap bonds with higher yields, much more satisfying in a few years to look back on how low you paid for some assets (like those who bought gold in the 2000s-2010's when sentiment was much like how it is now toward stocks and LTTs)
I don't know if this is helpful to anyone but as my grey hairs come in and I witness my second bear market I felt a need to contribute.
If it helps anyone struggling with the LTT and stock bear market, I can say the following-
1. We have no clue what will happen in 3 months, 6 months or a year. Inflation "could" settle down and the Fed goes QE crazy again to stimulate growth, who knows? Conversely we could go into a horrible stagflation for the next decade and only gold/cash will keep us afloat. It would be gambling to place a bet on one side or the other and the PP has natural mechanisms to prevent wild fluctuations.
2. Correlations, YTD and short term figures are scary and sometimes deceiving. Yes stocks and bonds are going down together short term, but there are hours, days, weeks and quarters like that. It's highly unlikely the figures will look the same at year end or in a longer timeline.
3. Bond interest offsets the apparent capital loss , in my own portfolio I'm calculating about 4-5 years compounded bond interest to break even from the 20% down so far this year.
For those in the accumulation phase-
4., averaging in of new LTT funds can substantially raise portfolio yield
5. In any sector, a bear market is what you want. Everything is on sale, cheap shares, cheap bonds with higher yields, much more satisfying in a few years to look back on how low you paid for some assets (like those who bought gold in the 2000s-2010's when sentiment was much like how it is now toward stocks and LTTs)
I don't know if this is helpful to anyone but as my grey hairs come in and I witness my second bear market I felt a need to contribute.