Ques about the purchase/sale of Long Term Bonds

Discussion of the Bond portion of the Permanent Portfolio

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thisisallen
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Ques about the purchase/sale of Long Term Bonds

Post by thisisallen » Tue Oct 11, 2016 10:28 am

Just getting my feet wet in understanding this portfolio - a lot more to learn...
Is it the correct procedure to buy 30 yr bonds and then hold them for 10 yrs? And then sell the 20 yr bonds in order to buy more 30 yr ones?

At the time of the "forced" sale there is either a capital gain or a capital loss on the transaction?

Do investors any investors buy a kind of a ladder of bonds, say 25-30 yr bonds, and when they sell them at 20 yrs they purchase the same duration bond that they just sold (either 25, 26, etc)?

Thanks.
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Xan
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Re: Ques about the purchase/sale of Long Term Bonds

Post by Xan » Tue Oct 11, 2016 11:08 am

Hi Allen!
thisisallen wrote:Just getting my feet wet in understanding this portfolio - a lot more to learn...
Is it the correct procedure to buy 30 yr bonds and then hold them for 10 yrs? And then sell the 20 yr bonds in order to buy more 30 yr ones?

At the time of the "forced" sale there is either a capital gain or a capital loss on the transaction?
Yes, orthodox PP-ism is to buy 30-year bonds and sell them when they reach 20 years. The 20 year thing isn't set in stone, it's just easy to remember and to execute. What IS set in stone is that your long-term bonds should always be between 20 and 30 years. And yes, when you sell the bonds there will (likely) be either a capital gain or a capital loss.
thisisallen wrote:Do investors any investors buy a kind of a ladder of bonds, say 25-30 yr bonds, and when they sell them at 20 yrs they purchase the same duration bond that they just sold (either 25, 26, etc)?
I'm not sure I understand your question; if you're purchasing the same duration bond you just sold when it hit 20 years, then you're buying a 20 year bond. But yes, laddering is a fine way to handle your bonds. In fact as you make contributions, you basically make a bit of a ladder automatically.
thisisallen
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Re: Ques about the purchase/sale of Long Term Bonds

Post by thisisallen » Tue Oct 11, 2016 11:23 am

Clear.

if you buy a 25 yr bond then, when it hits 20 yr you purchase another 25 yr bond (the original duration).
mukramesh
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Re: Ques about the purchase/sale of Long Term Bonds

Post by mukramesh » Wed Oct 12, 2016 2:40 pm

Why buy 25yr bonds? Just buy 30. No laddering needed for the Bond portion of the PP.

You can consider laddering your Cash portion.
thisisallen
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Re: Ques about the purchase/sale of Long Term Bonds

Post by thisisallen » Wed Oct 12, 2016 2:47 pm

OK.
Still learning...
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