Re: TLT - Why Is Income from Govt Obligations so LOW?
Posted: Wed Feb 29, 2012 9:56 am
I think I will reduce my TLT to a smaller position, just enough for rebalance purposes and move most of it to actual treasuries.
Permanent Portfolio Forum
https://www.gyroscopicinvesting.com/forum/
https://www.gyroscopicinvesting.com/forum/viewtopic.php?t=2249
As far as I know they cannot lend shares in your IRA/401(k). The reason they can lend shares in your margin account is because they are giving you the 'privilege' of borrowing cheap money from them to invest on margin. Otherwise they wouldn't lend you the money at such a low rate.WildAboutHarry wrote:What about brokerage accounts for IRAs/401(k)s? No margin there. Can they lend securities from these accounts?Gosso wrote:I'd hate to throw gasoline on the fire but if you're using a margin account then your discount broker can lend out any shares that you own inside that account.
I'm concerned about the whole ETF/fund thing - broker, I-Shares, et al. It is a chain forged of potentially very weak links.
Thanks. Assuming one has access to brokerage windows in tax-sheltered accounts that gives some coverage.Gosso wrote:So a Margin Account is the same as unallocated gold, whereas a Cash Account is more like allocated gold.
You could be right about the shares in the cash-account being in a pool except unable to be lent out -- I only asked my broker about the margin account. Plus the rules may be different between Canada and the US?WildAboutHarry wrote:Although I think all shares, both cash and margin accounts alike, are typically held in street name and thus the cash-account shares are a bit closer to the un-allocated portion of the spectrum.Gosso wrote:So a Margin Account is the same as unallocated gold, whereas a Cash Account is more like allocated gold.
Minor tweak - I would think the stocks should be in a fund, not ETF. And I wouldn't necessarily go for cheapest but rather most transparent. If they're cheap they may be cheap for reason (like, oh I don't know, maybe they loan out their securities ).MediumTex wrote: I've talked about "deep assets" in each PP asset class, and this discussion just reinforces the need for the deep assets in the bond allocation to be actual treasury bonds.
An overall PP's deep assets might look like this:
Stocks: Cheapest S&P 500 fund you can find
Gold: Bullion
Cash: EE and I series savings bonds and t-bills
Bonds: 30 Year treasury bonds
Personally, I think that VTSMX is hard to beat overall for the stock portion, but apparently Vanguard's index ETFs are basically the same as their index mutual funds.rickb wrote:Minor tweak - I would think the stocks should be in a fund, not ETF. And I wouldn't necessarily go for cheapest but rather most transparent. If they're cheap they may be cheap for reason (like, oh I don't know, maybe they loan out their securities ).MediumTex wrote: I've talked about "deep assets" in each PP asset class, and this discussion just reinforces the need for the deep assets in the bond allocation to be actual treasury bonds.
An overall PP's deep assets might look like this:
Stocks: Cheapest S&P 500 fund you can find
Gold: Bullion
Cash: EE and I series savings bonds and t-bills
Bonds: 30 Year treasury bonds
ETFs are much more complicated beasts than mutual funds. Either can (and many do) engage in security lending, so there's really not much difference on that score - but the indirect linkage between an ETF's market price and the NAV of the underlying assets (maintained by the actions of the authorized participants) is a complication that's simply not there with mutual funds.moda0306 wrote: What really makes a mutual fund safer than an ETF? Couldn't they engage in security lending within a mutual fund?
Great points.rickb wrote:ETFs should theoretically be cheaper since the securities buying and selling is done by APs (who, in return, are able to profit from differences in the ETF's share price and its NAV). And, indeed, VTI's ER is 0.06% while VTSMX's is 0.17% and VTSAX's (admiral class shares) is 0.07%. However, the tradeoff is the additional complexity and the fact that the ETF's share price is not simply the NAV of the fund's assets. For example, how did VTI do during the flash crash? My recollection is it dropped to essentially $0.00 (maybe it was $0.01) even though the NAV was $50 or so.
I agree and much prefer funds to ETFs for all of the obvious reasons.CraigR wrote:Yes the benefit of the fund is you deposit your money and get end of day closing price. No need to worry about bid-ask spreads, commissions, etc. For someone in the Permanent Portfolio there is so little trading that the intra-day pricing of ETFs is not an advantage anyway.
learning things like this from folks who have no monetary interest is one thing makes this board so helpful...as always, thanks to all, esp CraigRWildAboutHarry wrote:I agree and much prefer funds to ETFs for all of the obvious reasons.CraigR wrote:Yes the benefit of the fund is you deposit your money and get end of day closing price. No need to worry about bid-ask spreads, commissions, etc. For someone in the Permanent Portfolio there is so little trading that the intra-day pricing of ETFs is not an advantage anyway.
One problem with modern investing in general is there are too many damn choices.
For example, Vanguard came out with free ETFs in their accounts, so off I went to ETFs. A short time later -- listen to the paranoia creep in -- they offered many of the same funds as Admiral shares at $10K minimums. So now I am stuck with ETFs when I really want to be in funds. And it takes three days to unwind an ETF position to get back into funds at Vanguard.
Go figure.
Of the ETFs, the Vanguard ones are least likely to have problems. IMO. They are just shares of the main fund. So I wouldn't worry about what you have. However I would not put in automatic stop limit orders on them just in case we get Flash Crash 2.0. If there is some kind of serious problem in the market you want to be able to evaluate the situation yourself and not have some automated tools doing things for you.WildAboutHarry wrote:I agree and much prefer funds to ETFs for all of the obvious reasons.CraigR wrote:Yes the benefit of the fund is you deposit your money and get end of day closing price. No need to worry about bid-ask spreads, commissions, etc. For someone in the Permanent Portfolio there is so little trading that the intra-day pricing of ETFs is not an advantage anyway.
One problem with modern investing in general is there are too many damn choices.
For example, Vanguard came out with free ETFs in their accounts, so off I went to ETFs. A short time later -- listen to the paranoia creep in -- they offered many of the same funds as Admiral shares at $10K minimums. So now I am stuck with ETFs when I really want to be in funds. And it takes three days to unwind an ETF position to get back into funds at Vanguard.
Go figure.
craigr wrote: However I would not put in automatic stop limit orders on them just in case we get Flash Crash 2.0. If there is some kind of serious problem in the market you want to be able to evaluate the situation yourself and not have some automated tools doing things for you.
A nice but minor factor in favor of funds is buying fractional shares. If I have $5,000 I can buy $5,000 worth of a fund. Can't do that with ETFs.steve wrote:I personally like ETF's better then funds. When I buy something or sell something I like knowing how much I am buying and how much I am paying. I hardly ever trade and funds would work also but I like interday pricing.
It great that there are both funds and ETFs so everyone can get what they like. For me I like the fact that with the click of refresh all on my spread sheet I can see the value of my holdings anytime. Other information I like to see is my percent increase or decrease from my last rebalance point, year to date etc. and other usefull information for example if I need to rebalance how much, it also shows me what GTU premium or discount is and I can do it anytime. I feel like I can make better decisions knowing where I stand at all times.WildAboutHarry wrote:A nice but minor factor in favor of funds is buying fractional shares. If I have $5,000 I can buy $5,000 worth of a fund. Can't do that with ETFs.steve wrote:I personally like ETF's better then funds. When I buy something or sell something I like knowing how much I am buying and how much I am paying. I hardly ever trade and funds would work also but I like interday pricing.
Yes you can. Fractional shares in ETFs and stocks and CEFs are entirely up to your broker.WildAboutHarry wrote:A nice but minor factor in favor of funds is buying fractional shares. If I have $5,000 I can buy $5,000 worth of a fund. Can't do that with ETFs.
I know you can reinvest dividends into fractional ETF shares, but can you buy them? i.e., buy an even $100 (or $1,000, or $10,000)?AgAuMoney wrote:Yes you can. Fractional shares in ETFs and stocks and CEFs are entirely up to your broker.
Yes. And not just ETFs but regular company shares, partnership shares, most every ticker symbol. (When sharebuilder first started they had a pretty short list of tickers you could buy, but it is nearly comprehensive now.)WildAboutHarry wrote:I know you can reinvest dividends into fractional ETF shares, but can you buy them? i.e., buy an even $100 (or $1,000, or $10,000)?AgAuMoney wrote:Yes you can. Fractional shares in ETFs and stocks and CEFs are entirely up to your broker.
Alas, not at Vanguard.AgAuMoney wrote:Yes. And not just ETFs but regular company shares, partnership shares, most every ticker symbol. (When sharebuilder first started they had a pretty short list of tickers you could buy, but it is nearly comprehensive now.)
murphy_p_t wrote: is the concern with TLT also applicable to SHY/SHV?
I agree the answer is yes, but if they actually hold 100% cash collateral, marked to market every day, the risk for loans involving the bonds held by SHY/SHV is considerably different because these bonds are so much less volatile than the long term treasuries held by TLT. The main risk we've talked about regarding TLT is that the borrower (who has almost certainly sold the borrowed bonds short) gets caught on the wrong side of a large, sudden downward move in interest rates - and can't afford the cash to mark to the new market price (and then defaults, and all manner of ugliness ensues). The shorter duration of the bonds held by SHY/SHV makes the potential mark to market obligation for these much, much less (at least in percentage terms), so a default based on a price spike would seem to be fairly unlikely (and they pay approximately 0% now anyway, so how much lower can interest rates really go?). On the other hand, one might wonder what form(s) of "cash" the fund considers acceptable as collateral and what the fund does with this cash for the duration of the loan - I mean, they probably don't insist on stacks of dollar bills and then put these dollars in a vault. I'm sure if you called them up they'd be happy to tell you all the gory details - unless of course they're hiding something in which case they either won't tell you or they'll lie to you.WildAboutHarry wrote: Yes