The Bond Dream Room

[Dieter]

My what big rebalancing bands you have. Where did 10/40 come from ?

That's the standard 15% lower bound.

A 40% shave from 25% gives 15%.

[Edit: ah, the math showing drop used 40%, but missed that 10% band... If 10% of portfolio is lower band, would need a 60% drop in asset value if everything else stayed the same, whole examples used 40% drop......]

[Cortopassi]

10/40 and 15/35 are both listed as option in peak to trough, and I know I've seen it elsewhere.

And it seemed typically, for any randomly long period 10/40 was a slight better CAGR than 15/35, as well as 20/30 and annual.

But I have been doing annual.

For example, from 1989 to now (yeah, last few months data on PtoT is invalid)

CAGR:
10/40: 7.5%
15/35: 7.31%
20/30: 6.87%
Annually: 6.91%

Basically the more cajones you have to withstand a larger drop before rebalancing, the better return you'll have over time, at least historically.

[Cortopassi]

My what big rebalancing bands you have. Where did 10/40 come from ?

That's the standard 15% lower bound.

A 40% shave from 25% gives 15%.

Dieter, correct on % but I did mean 10% left of 25% allocation, so 60% drop, or 1.6x increase to 40% allocation from 25%. +/-60% of original.

[Dieter]

My what big rebalancing bands you have. Where did 10/40 come from ?

That's the standard 15% lower bound.

A 40% shave from 25% gives 15%.

Dieter, correct on % but I did mean 10% left of 25% allocation, so 60% drop, or 1.6x increase to 40% allocation from 25%. +/-60% of original.

I think I edited my post at the same time you wrote this... Use of "40% drop" in the examples through me -- shouldn't those use 60%?

"If you stick by Harry's original 25/25/25/25, and the 10%/40% rebalancing bands, here's the pain that must be endured, assuming you rebalanced at the beginning of the year and are waiting for a 10% band (40% drop). This assumes the other allocations in the portfolio have held steady.

Gold, 1/1/2018: ~$1312/oz.
--40% drop to reach rebalance band, gold would need to hit $787
TLT, 1/1/2018: ~125.50/sh
--40% drop to reach rebalance band, TLT would need to hit $75.30
"

[barrett]

Let's say all assets have a starting value of $1,000 on 1/1/18

A 60% drop in any one of them with the other three assets staying flat leaves one with $3,400. The asset that has dropped 60% is at $400 which is still 11.8% of the total portfolio.

[jhogue]

The only way 10y is going to 6% is if inflation is over 5%. Unlikely. And if it is, you will still want the PP.

Aren’t rising home prices, medical expenses, and college tuition a form of inflation?

Not if you are the US government and want to keep Social Security increases to a minimum.

Actually, there is no single sufficient measure of inflation for the entire economy. The cost of both medical care and college tuition have both been rising faster than the Consumer Price Index for decades. The former disproportionally hurts retirees; the latter disproportionally hurts recent graduates in the form of student loans. If you don’t fall into those two categories, you might not feel those corresponding effects.

Something similar could be said for bond market interest rates. The flattening of the yield curve in the past year might look bad to a holder of 30 year Treasury bonds, but not so bad to a potential buyer of 1 year T bills.

I think MangoMan is right on both counts. The 10 year yield, which has been trading in a range of 2.90% to 3.00% for a while, seems unlikely to suddenly shoot up to 6%. But no matter what happens, you still want the PP -- and a barbell with Treasurys at both ends-- for protection against the possibility of inflation and the economic uncertainty that goes with it.

[Dieter]

Let's say all assets have a starting value of $1,000 on 1/1/18

A 60% drop in any one of them with the other three assets staying flat leaves one with $3,400. The asset that has dropped 60% is at $400 which is still 11.8% of the total portfolio.

Doh - right. Thanks. Of course, 10% of what you USED to have...

Would need to loose 66.7% I think....

Or 60%, gold flat, cash up 2% and stocks up 58%....

Haven't really thought about it from this angle before....

[ochotona]

I got reacquainted with peaktotrough.com. My, that 40/10 rebalance system is really the lazy person's system. Seven rebalances in half a century. I really like that. 35/15 is the best the way I did my test, but it trades way more.

[Cortopassi]

I got reacquainted with peaktotrough.com. My, that 40/10 rebalance system is really the lazy person's system. Seven rebalances in half a century. I really like that. 35/15 is the best the way I did my test, but it trades way more.

Lazy is the way I should have done things. Too active described me.

[dualstow]

Long bonds are going nuts today, even more so than when stocks were down.


EDIT: and...stocks are down.

[ochotona]

"FRANKFURT (Reuters) - The European Central Bank is considering buying more long-dated bonds from next year to keep euro zone borrowing costs in check even after it stops pumping fresh money into the economy, sources told Reuters."

I guess this will suppress US long bonds as well. The yield curve will be flattened further.

[barrett]

I guess this will suppress US long bonds as well. The yield curve will be flattened further.

The spread between yields on one-year treasuries and 30-year issues here in the US has narrowed from 98 basis points at the beginning of 2018 to just 64 basis points after yesterday's action.

[ochotona]

What happened to the bond bear market?

https://www.schwab.com/resource-center/ ... cmp=em-QYD

[boglerdude]

http://www.etf.com/VCSH
https://investor.vanguard.com/etf/profile/VCSH

SEC yield 3.37% ?

[dualstow]

http://www.etf.com/VCSH
https://investor.vanguard.com/etf/profile/VCSH

SEC yield 3.37% ?

Maturity of 1-5 years.

[boglerdude]

Other sources say yield 2.4%

https://finance.yahoo.com/quote/vcsh?ltr=1
https://www.google.com/search?q=NASDAQ:VCSH

[dualstow]

Maybe it's not SEC yield?
While Yahoo's numbers always match up with the yield I'm getting on individual stocks, I don't know how they do bond funds.
If you hold VCSH for the "duration" (I mean average maturity in this case), you should get a decent overall yield.
Not pp-ready, of course, but a decent yield for your vp perhaps?

[dualstow]

For boglerdude, I suppose yield to maturity is the one to focus on. Is that right? I mean, when we really want to get a grasp of the yield we're going to get. (Of course long treasuries in the pp are all about duration).

[bedraggled]

What's up with the decline in 30-year Treasuries this morning?

Thanks.

[dualstow]

What's up with the decline in 30-year Treasuries this morning?

Thanks.

I don't know if it's the only factor, but the WSJ says "on concerns of falling demand from abroad."

[Kriegsspiel]

I did notice that Russia dumped something like $50 billion of Treasuries recently in favor of gold. Japan and China both sold billions earlier this year as well, I don't know if that was a one time thing, or net for the year. So at least someone is not demanding them.

[bedraggled]

Thanks for your prompt, informative response.

[ochotona]

Side note from another discussion thread - Schwab and Fidelity have the same prices for US Treasury Bonds. Kind of good for bond buyers to know.

[Kriegsspiel]

Thank goodness for dualstow's signature, or I wouldn't have known I just got some interests.

[dualstow]

I cannot tell a lie - I unloaded some more long bonds just now. Only keeping a few with really nice yields.
I guess I broke my pp, but I will continue to hold the four components in some proportion. Not going to sell gold or anything.