Buy bonds now or wait

[dualstow]

Rock on,

Well, I move about as much as a rock, which is good for investing.

whether you are dynamically nudging things

I would classify my wife as a dynamic nudge, although that's outside the realm of investing.

right now i have all the concerns a pp user has

Should be - right now I have all the concerns that a pp user need not have.

[mathjak107]

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 ..

it does not mean you act but you certainly should be concerned as to where and if there is a bottom near . just because if rates are on their way to normalizing we have quite a ways to go yet .

this down blast is not unique to the golden butterfly , the pp is just as vulnerable . in fact the gb had the advantage of having a huge run up last year in small caps which the pp did not , so it has stood up better to date because of the extra cushion carrying over from last year . the gb returned almost 10% last year .

[dualstow]

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

That's the way it goes. The whole point is that the assets are non-correlated. Sure, it's more fun when the non-stock stuff is going up and one's stock-heavy friends are curious, but I like it when stocks go up.

it does not mean you act but you certainly should be concerned as to where and if there is a bottom near . just because if rates are on their way to normalizing we have quite a ways to go yet ..

If it does not mean I should act, why should I be concerned? There was a thread about possibly getting out of bonds at 1% or lower, but it wasn't a huge deal. One doesn't have to look at this stuff at all.

this down blast is not unique to the golden butterfly , the pp is just as vulnerable ....

It's funny, one would almost think from these posts that the golden butterfly wasn't created 5 minutes ago. But it was.

[farjean2]

When I went all in with the PP Gold was at an all-time high. Almost 9 years later my total gold holdings are still slightly in the red even though it has surprisingly been the biggest gainer for the last two years (including this year, so far, last I looked).

Except for cash, I don't see how you can ever answer the question about "buy now or wait" on any of the other 3 sectors. If I was getting in now I think I'd be more tempted to ask "Buy Stocks now or wait" than bonds, given what I experienced before. Unless you have a crystal ball how can you ever know? You can make an educated guess but you could be dead wrong or dead right.

I also bought my house at the peak of the housing market shortly before getting into the PP. How could I have known that either? (And I just learned that I have positive equity according to Zillow for the first time in 9 years).

[dualstow]

When I went all in with the PP Gold was at an all-time high. Almost 9 years later my total gold holdings are still slightly in the red

I think the all time high was 5 1/2 years ago.
http://money.cnn.com/2011/08/22/markets/gold_prices/

Maybe relative to another currency?

[farjean2]

When I went all in with the PP Gold was at an all-time high. Almost 9 years later my total gold holdings are still slightly in the red

I think the all time high was 5 1/2 years ago.
http://money.cnn.com/2011/08/22/markets/gold_prices/

Maybe relative to another currency?

I originally went in with PRPFX and wasn't keeping track. I probably did buy my first gold on my own at that time. It was $1750/ounce. Just checked my records to be sure. I still have the coins.

[dualstow]

Ah, I bought a bunch at $1600, too. Mid-May 2012. I miss those prices (as a holder, not a buyer).
(Oops, you edited to $1750. )

[farjean2]

Ah, I bought a bunch at $1600, too. Mid-May 2012. I miss those prices (as a holder, not a buyer).
(Oops, you edited to $1750. )

Yes, I did. Just checked my records to make sure I wasn't propagating fake news. That was my first and highest purchase price.

[sophie]

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 ..

What losses are you referring to? Last I checked, bonds and gold have been up and down, but with no big changes in the past couple of years. And stocks are doing well enough to provide the gains, but if they "run out of steam" then either gold or bonds will take over that role.

Which is how the PP is SUPPOSED to work. One asset is always going to be in the doghouse while others are shining. Those of us who have adopted the PP went into it fully understanding how this works. Thus, we are not concerned. You need to be concerned only because you're trying to time your ownership of those assets.

[mathjak107]

what losses ? TLT is down almost 8% the last year with almost 1/2 that the last few weeks .

gold is up only 5% now for the 1 year and lost almost 4% the last few weeks .



interest rate cycles are not like stock cycles . rate cycles typically can go on for very long times .

unless bond and gold investors smell trouble on the horizon and there is a flight to safety both the gb and pp are more correlated than uncorrelated and volatility can be pretty high with some pretty steep losses . .

about 1/2 the gains I had are now gone the last few weeks .

lets hope the market does not continue to keep pricing in more and more hikes .that would not be good for either gb or pp .

we have had a 35 year bull market in bonds so this is very different with rates this low and likely no where to go but up and stock valuations so high at the same time . we almost have to count on a flight to safety and hopefully it will not be out of bonds .

[dualstow]

about 1/2 the gains I had are now gone the last few weeks .

How could you let that happen? Very irresponsible of you.

[mathjak107]

well I still will give the gb a shot for a while . but time will tell if it was a wise choice under these conditions . my personal feeling is i am counting on that flight to safety out of equity's at some near point . everyone is to nervous about equity's so it may be self fulfilling when it looks like trump mania will not pan out .

that is why i decided to run with the gb for a while . the plan is take cover in the gb , let things fall , and eventually go back to my regular models making the whole thing worth it .

but so far we are experiencing greater drops in the gb .

[ochotona]

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

[Jack Jones]

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.

[mathjak107]

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 .

[Cortopassi]

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.

[mathjak107]

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 .

[grapesofwrath]

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.

[mathjak107]

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 . .

[ochotona]

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.

[grapesofwrath]

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......

[mathjak107]

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 .

[grapesofwrath]

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

[mathjak107]

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

[Dieter]

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....