Buy bonds now or wait

Discussion of the Bond portion of the Permanent Portfolio

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ochotona
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Re: Buy bonds now or wait

Post by ochotona » Fri Mar 10, 2017 12:22 pm

You can start a PP with short and intermediate term Treasuries then lengthen gradually. Then you won't get shocked out. Start with SHY, then IEF, then TLT maybe
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Re: Buy bonds now or wait

Post by Jack Jones » Fri Mar 10, 2017 3:00 pm

mathjak107 wrote:well if i was a pp user as well i certainly would be concerned the way bonds and gold have been racking up losses every day while equity's seem to be running out of steam or are down ..
Textbook trolling. Well done sir.
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Re: Buy bonds now or wait

Post by mathjak107 » Fri Mar 10, 2017 3:42 pm

facts are facts . that is exactly what we are seeing since bond rates have reversed direction almost a year ago .

the fact is i own the gb and although i bought it after most of the selling in bonds and gold after the election it is a concern . . a strong dollar and rising rates has left it very very correlated .
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Re: Buy bonds now or wait

Post by Cortopassi » Fri Mar 10, 2017 3:48 pm

MJ, Jack,

Yes, bonds have gone down for a while. My question to anyone still is, why are US bonds yielding more than some obviously terribly in trouble countries? Hell, our 10 year rate is higher than France, Germany, Italy!, Spain!, and Sweden to name a few.

Something is fishy, and I personally expect US rates to go down and bond prices to rise when the honeymoon fizzles.
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Re: Buy bonds now or wait

Post by mathjak107 » Fri Mar 10, 2017 3:52 pm

that is my opinion . i think trump mania is going to deflate and inflationary expectations and growth are going to fall short .

if i didn't think that i would not have changed strategy's . i just hope i didn't shoot myself in the foot . the gb and pp really need a flight to safety at this point in time because these rising rates are the perfect storm for poor performance from it . i know the gb i own has been seeing bigger drops than the 100% equity model's i track because it has been so correlated .

the bad thing is that bull markets don't end when there is so much pessimism as well as modern recessions have not been kicked off without record energy prices .

in fact leading indicators are showing we are behaving like the very early stages now that you typically see in a recovery . it just took 8 years to get here .

so these really are the most uncertain times i can remember in my 30 years as an investor .

i really don't want 100% equity volatility being retired .
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Re: Buy bonds now or wait

Post by grapesofwrath » Sat Mar 11, 2017 5:44 am

Reading some of these posts is exhausting. Guessing what Trump, the economy and interests rates are going to do is also exhausting. And after decades I've learnt I'm invariably wrong. I don't have the balls to hold LTT and I'm a conservative investor (>60% treasuries) so I meld LTT+cash and instead of buying an ITT fund I decided to just regularly and blindly buy 5-7yr treasuries in Treasury Direct to form a ladder and hold them to maturity. I figure if I hold discrete treasuries in TD rather than a fund I'm less likely to mess with it and do something wrong. Over a 5-7 year period how terribly wrong can this go in whatever rising/falling interest rate environment.
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Re: Buy bonds now or wait

Post by mathjak107 » Sat Mar 11, 2017 5:58 am

how terribly wrong can it go ? no one knows . but with asset values falling greatly every time an increase is suspected the damage can be severe .

the problem is intermediate term bonds do not have the power to do any heavy lifting in a sustained down turn . at best they mitigate some damage but they just don't generally have enough ooomph to over come losses in more volatile investments like stocks and gold .

long term treasury's are heavily dependent on not only rates but fear ,greed and perception of future inflation . the farther you go out the more other factors other than just rates play a part .

while on the surface it looks like a split between cash and long term bonds have the same duration as 100% in an intermediate term bond fund that is not the case once fear ,greed and perception kick in .

you saw a mix of shy and tlt fall far more than an intermediate term bond fund the last few weeks . duration's appear close but that is only until the crap hits the fan in either direction .

at the end of the day the long term bonds can be much more effective for that reason than intermediate term bonds in a flight to safety but they can get punched harder when risk is on in the stock markets and rates are rising and inflation fears grow . .
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Re: Buy bonds now or wait

Post by ochotona » Sat Mar 11, 2017 7:00 am

grapesofwrath wrote:I meld LTT+cash and instead of buying an ITT fund I decided to just regularly and blindly buy 5-7yr treasuries in Treasury Direct to form a ladder and hold them to maturity. I figure if I hold discrete treasuries in TD rather than a fund I'm less likely to mess with it and do something wrong. Over a 5-7 year period how terribly wrong can this go in whatever rising/falling interest rate environment.
That's a really good call. If you backtest LTT+cash, they DON'T perform just the same as a bond with duration = LTT duration / 2. The barbell is much more "spiky", volatile. If this was still a bond bull market, a block of 10 year Treasuries would be ideal. Since we don't know if it is or not, 5-7 years are prudent. And if you're wrong, and we're still in a bond bull, 5-7 years vs. a barbell of LTT and Cash backtest pretty close anyway.
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Re: Buy bonds now or wait

Post by grapesofwrath » Sat Mar 11, 2017 7:43 am

Thank you ochtona. I should also add I enjoy the calmness and wisdom of sophie (and who couldn't love that cute pink pig...!). Its reassurance from you guys why I read this site.

If interest rates rose I would lengthen my maturity from 5 to 7 to possibly max 10 years. I know what rates are but I'm not going to guess direction.

I should mention, as you may guess, I'm not pure PP but more Desert like. I have no fundamental objection to PP, but my lack of balls puts me at a smaller gold slice target (10%) and as I mentioned I want to avoid looking at the isolated volatility of LTT. I have the luxury that I have a fair chunk in my portfolio so can minimize risk. Discrete bonds in treasury direct makes it more remote for me and hopefully less prone to fiddling (guessing and panicking).

My own personal revelation was that treasuries, gold and stocks were essentially uncorrelated (I'm a physics, maths, engineering geek so I get turned on by three basis vectors....) together with hard lessons learnt that in investing I am my own worst enemy that comes from knowing/guessing. If I have fear its not from bonds/interest rates but US stocks......
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Re: Buy bonds now or wait

Post by mathjak107 » Sat Mar 11, 2017 8:34 am

treasury's , gold and stocks are not totally uncorrelated . at times like now they are strongly correlated . with all the arts moving up and down together on quite a few days and each part being very volatile im seeing deeper drops than 100% equity . same with gains at times .

right now things are all correlating to interest rate fears . we are mimicking a tight money situation without actually being in that scenario .
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Re: Buy bonds now or wait

Post by grapesofwrath » Sat Mar 11, 2017 8:40 am

if you choose a small enough time scale anything and everything will appear correlated at some stage...i guess one needs to stand back and take a minimum 10 year perspective
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Re: Buy bonds now or wait

Post by mathjak107 » Sat Mar 11, 2017 8:50 am

depends . you may not have 10 years .

many retiree's use the pp or gb for its risk parity and supposed low volatility .

it took 35 years for rates to bottom out , if we have 10 years of rates rising back to normalizing many retirements can go bust from poor sequencing early on . so you can only sustain losses or poor returns just so long under some circumstances .

v-shaped drops , even steep ones with fairly short recovery times like 2008 are not a problem . but sustained u-shaped drops , even moderate drops can be very destructive .

retirement out comes are formed in the first 5 years with the first 15 years outcome determining the entire 30 year outcome .

so yes , this rate situation has many folks very concerned because of the effect on all assets but some things like gold and longer term bonds can be overly effected .

i believe that we will not see much of this anticipated growth happen so i have faith that rates will come down at some point and equitys will roll back . while we like to think that using the pp is not betting on any particular outcome in this case we very well are . we were betting rates won't be on their path normalizing back to their 6% range . because that would likely play out terrible for the pp and gb .

so yes , by switching from my regular portfolio strategy to the gb i am making a bet because this can turnout worse if i am wrong
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Re: Buy bonds now or wait

Post by Dieter » Sat Mar 11, 2017 2:17 pm

And yes, 50/50 LTT/Cash likely to be more volatile than all bonds in intermediate term treasury's.

VFITX (ITT) has a duration of 5.3.

Using Vanguard's VUSTX (LTT) with a 16.6 year duration plus cash (0 duration) gives 8.3 average. Higher if use a short term bond fund for parts / all of Cash, as some folks do in retirement accounts.

So, maybe ~50% more volatility (or hold less bond for same volatility in the portfolio.)

But that is what is wanted in PP and PPesque portfolios.

Still expect more volatility from Stocks and Gold.

That said, I go a bit (PP) short on duration, holding LTT, ITT, STB, and a bit of "cash" (Money Market) in my PPesqe portfolio. TBD how long keep ITT, although I have three stock funds in that portfolio and I like the three bond fund symetry with that.....

I think its more likely for rates / inflation to go up, but who knows....

Rates rise. Bonds drop. Foreigners buy bonds. Bonds back to where started....
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Re: Buy bonds now or wait

Post by farjean2 » Sat Mar 11, 2017 2:47 pm

mathjak107 wrote:well I still will give the gb a shot for a while
Do you really think giving different portfolios "a shot for a while" is a wise way to invest?
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Re: Buy bonds now or wait

Post by mathjak107 » Sat Mar 11, 2017 2:49 pm

yes ..... i have been very successful at it for 30 years now .

there is no question different models fit the bigger picture better at different times . this may be the only mistake if i guessed wrong about rates coming down . the risk here in the gb is much higher than my usual portfolio which is a diversified 40-50% equity model without gold and LT bonds . but it is the best way i know to play all the scenario's right now and still have a prosperity tilt .

how long will i keep it ? not sure yet but i will let things unfold for a bit .
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Re: Buy bonds now or wait

Post by farjean2 » Sat Mar 11, 2017 3:00 pm

mathjak107 wrote:yes ..... i have been very successful at it for 30 years now .

there is no question different models fit the bigger picture better at different times . this may be the only mistake if i guessed wrong about rates coming down . the risk here in the gb is much higher than my usual portfolio which is a diversified 40-50% equity model without gold and LT bonds . but it is the best way i know to play all the scenario's right now and still have a prosperity tilt .
Well, if you can do that and avoid the buy high/sell low, chasing returns habit of most investors then good for you. Been there and done that but now that I'm retired like you I prefer to stick with something mechanical with a proven track record and stay the course. I don't even look at all the stuff you do. And I am in the GB also, BTW. My portfolio just seemed to gravitate in that direction so I just left it there. It did great the first year but it could have been exactly the opposite.
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Re: Buy bonds now or wait

Post by Dieter » Sat Mar 11, 2017 3:49 pm

mathjak107 wrote:
<snip>

the risk here in the gb is much higher than my usual portfolio which is a diversified 40-50% equity model without gold and LT bonds . but it is the best way i know to play all the scenario's right now and still have a prosperity tilt .

how long will i keep it ? not sure yet but i will let things unfold for a bit .
As I'm sure you know, the GB when starting from the other side vs PP:
* Starts with a 40/60 stock / intermediate bond allocation; stocks tilted to SCV

* Squishes (technical term :) the 60% bond exposure into 40% of the portfolio by increasing the average duration, such as:
60 * 5.3 = 316
40 * 8.3 = 332 (aka, 20 * 16.6 LTT + 20 * 0 cash duration)

* Takes that 20% into Gold, which is a bit of a wildcard and a big (biggest?) cause of tracking error vs more standard Boglehead or the 30/70 heavily tilted Larry portfolio

Plus have more options on the bottom of the barbell - CDs, iBonds, Online Savings, STB....
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Re: Buy bonds now or wait

Post by mathjak107 » Sat Mar 11, 2017 3:59 pm

the small cap index slyv acts leveraged and usually moves 2 to 3x what the s&p 500 does . gold is very volatile and long term treasury's very volatile too . so lately that version of the gb has been extremely more volatile than my regular portfolio . there are days the dollars moved match the 100% equity's model i track and used prior to retiring .

equity's are mostly large cap in the model i use and bonds range from short to intermediate with about 20% in high yield . high yield was really a proxy for some stocks only with 1/2 the beta and a better deal when i bought it . fidelity high yield returned 16% last year with 1/2 the volatility of the s&p 500.

point being my model up to now was far far less volatile .

the reason i made the change is my portfolio had some fabulous growth and to be honest the bull is long in the tooth . so i was more interested in laying low in a less volatile model that covered all the bases when i shifted to the gb hoping to not have to wait years to get back if we tumble .

but since i bought it the tide changed on interest rates and the portfolio became far more correlated than i was hoping it would be , at least for now anyway .

once things get sorted out a bit down the road and we get some direction i will likely go back to my old tried and true portfolio .
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Re: Buy bonds now or wait

Post by farjean2 » Sat Mar 11, 2017 4:31 pm

mathjak107 wrote:t
the reason i made the change is my portfolio had some fabulous growth and to be honest the bull is long in the tooth . so i was more interested in laying low in a less volatile model that covered all the bases when i shifted to the gb hoping to not have to wait years to get back if we tumble .

but since i bought it the tide changed on interest rates and the portfolio became far more correlated than i was hoping it would be , at least for now anyway .
Geesh, you must love this stuff a lot more than I do. Hurts my head to even parse the sentences you wrote above.

My major goal in retirement right now is to catch a bass or a redfish with my new fishing boat.
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Re: Buy bonds now or wait

Post by Dieter » Sat Mar 11, 2017 4:51 pm

mathjak107 wrote:the small cap index slyv acts leveraged and usually moves 2 to 3x what the s&p 500 does . gold is very volatile and long term treasury's very volatile too . so lately that version of the gb has been extremely more volatile than my regular portfolio . there are days the dollars moved match the 100% equity's model i track and used prior to retiring .

equity's are mostly large cap in the model i use and bonds range from short to intermediate with about 20% in high yield . high yield was really a proxy for some stocks only with 1/2 the beta and a better deal when i bought it . fidelity high yield returned 16% last year with 1/2 the volatility of the s&p 500.

point being my model up to now was far far less volatile .

the reason i made the change is my portfolio had some fabulous growth and to be honest the bull is long in the tooth . so i was more interested in laying low in a less volatile model that covered all the bases when i shifted to the gb hoping to not have to wait years to get back if we tumble .

but since i bought it the tide changed on interest rates and the portfolio became far more correlated than i was hoping it would be , at least for now anyway .

once things get sorted out a bit down the road and we get some direction i will likely go back to my old tried and true portfolio .
Can't argue with how things have been going -- S&P 500 / large caps have had a great run since 2007, and LTT / Gold have been quite volatile. SCV volatile.

Nothing is cheap, and a united government (like it or not) makes change more likely.

The future may be interesting....
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Re: Buy bonds now or wait

Post by sophie » Sun Mar 12, 2017 8:39 am

farjean2 wrote:
mathjak107 wrote:well I still will give the gb a shot for a while
Do you really think giving different portfolios "a shot for a while" is a wise way to invest?
<answer was yes>.

Compared to what?

I did that for a while too. I was totally convinced I was getting great returns - until I compared my performance to a reasonable benchmark. Amazingly, my diddling around underperformed said benchmark quite significantly. Turns out that buying high and selling low is not a good way to invest - who knew?

Jumping investment schemes frequently is what most people do. It's fun and entertaining, and allows one to feel that they're accomplishing something. It may even win big from time to time. But in the long run, it will lose to a disciplined, passive strategy. I know mathjak will argue this point, but consider this: if active management is the panacea he says it is, why is it that virtually all professional active managers (i.e. people who do this for a living and know more about the markets than any of us could hope to) underperform their benchmarks over extended time periods? Also consider that most of us got to the PP after getting burned by our personal experimentation with active investing. Losing $100K is not fun, and I would be happy if I could prevent someone else from going down that same path.

The idea that this is even debatable is just kind of ridiculous. The VP section is the place in the forum for people to have at it without misleading casual readers.
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Re: Buy bonds now or wait

Post by mathjak107 » Sun Mar 12, 2017 8:40 am

compared to what ?

compared to the fidelity insight models i have used since 1987 with excellent success .

but they are not specifically geared for ducking the downturns . at this stage of my life i was hoping to avoid a large tumble if stocks fall by profiting in other areas with the gb if they do and mitigating the wait back . .

like i said time will tell if this was a wise idea or not .. to early to tell at this point but it sure has been a much more volatile ride so far .. with all parts acting in concert more than not the damage potential here is looking like it potentially can be pretty large the way today's circumstances are panning out now .

hopefully if stocks fall money will look for some safe havens and it will turn out the way i planned . but if stocks fall because of rates on bonds rising i could get burned worse . so while you may not think you are betting one way or another , we actually all are because rates are the wild card as to how much damage will be done when almost all assets correlate instead of going in opposite directions . .

having powerful assets pulling in opposite directions is nice , having them join forces and move against you is not so nice .

right now i am about 75% gb and 25% the old model . the older model is doing better at the moment . that is about 45% equity with a lot less volatility in bonds and no gold ..
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