Buy bonds now or wait

Discussion of the Bond portion of the Permanent Portfolio

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sophie
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Re: Buy bonds now or wait

Post by sophie » Thu Mar 09, 2017 7:39 am

Let me correct some statements made a few posts back. Long term bonds are not held in the PP in order to dampen the volatility of stocks, the way bonds are used in Boglehead-type stock/bond portfolios and the Desert porfolio. They are held because they are one of the assets that investors will flee to in the event of a stock market crash. They therefore provide negative correlation when it's most needed. In a way yes, you can think of it as a bet that a stock market correction will happen before rates rise. Conversely, not buying bonds is a bet that the opposite will be the case. The problem is that we don't know which of those things will happen first. So don't base your decision to buy long bonds on this bet. Instead, decide if you want to trade an increased risk of a significant drop in portfolio value for a chance to juice your returns.

Note that long bond rates are not as responsive to the Fed's actions as you might think. They probably have more to do with the low interest rates on European long bonds, which aren't going to change anytime soon.

FWIW...I'm going ahead and buying all four assets equally with new contributions, and otherwise waiting to hit rebalance bands. However, I'm waiting on the Fed before buying short term bonds. BTW has anyone noticed, the Fidelity US Treasury money market has dropped its minimum investment from $25,000 to $2,500? I don't see whether it still has checkwriting privileges though.
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mathjak107
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Re: Buy bonds now or wait

Post by mathjak107 » Thu Mar 09, 2017 7:51 am

when risk is off and money is flowing out of stocks long term bonds trade on greed ,fear and perception just like stocks . they can have very powerful moves not based on just rates and fed action ..

they march to their own drum . we already had the fed raising rates in 2007 while at the same time bond investors were driving rates down . the bond market smelled trouble and did not see things poppa fed's way . the bond market was right .

so that being the case you need the ooomph that only longer term treasury bonds can provide if you want to not just mitigate damages but actually profit from it in a flight to safety .

you can't really pay much attention to the feds short term moves in rates even though it spooks the bond markets . all bets on where bond rates go can quickly shift on a dime if stocks don't live up to trump mania and money leaves stocks for safer havens ,.

last year i saw no reason to hold long term bonds or gold . but as the big picture changes so do the investments so this year , at least for now i think that there is a pretty good chance trump mania will fizzle .
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Re: Buy bonds now or wait

Post by Cortopassi » Thu Mar 09, 2017 8:30 am

mathjak107 wrote:there is a pretty good chance trump mania will fizzle .
Already has for me. Took a whole month and a half.

Yeah, let's repeal Obamacare, and replace it with something better. Details, nah, who needs details. It'll cost less. Sure.

Leaks are good when your opposition has the problem, but a crisis when they happen to your side.

Let's rein in government. Unless we are the ones in power. Then I'm sure tax cuts and increasing the debt won't have any bad effects. Those kind of moves only have bad effects when the other side implements them, not us.

Yes, of course, we must increase military spending to shore up our underfunded military. Underfunded compared to who?

Why can't he stop with the Twitter?

Hypocrites one and all.
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 9:35 am

sophie wrote:Let me correct some statements made a few posts back. Long term bonds are not held in the PP in order to dampen the volatility of stocks, the way bonds are used in Boglehead-type stock/bond portfolios and the Desert porfolio.
I'm glad you pointed that out. That was mathjak and although you have some useful insight at times, jak, new people reading this should be aware that you are not really a permanent portfolio holder. (Not that there's anything wrong with that, but it should be made clear from time to time).

You make this clear (again) as you write:
last year i saw no reason to hold long term bonds or gold .
I, conversely, have little-to-no insight. My philosophy is this: if you hold all four assets and don't let the proportions get too out of whack, you are not really making a bet on anything, anymore than if you bought PRPFX and held it. You don't have to think about Yellen or interest rates. You don't have to worry about Trump or wiretaps. You don't have to bet on a flight to safety or count on American prosperity. You can just sit back and relax, knowing that the money you're stashing is less likely to evaporate than if you bought all Tesla or all silver coins.
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Re: Buy bonds now or wait

Post by mathjak107 » Thu Mar 09, 2017 9:52 am

i am giving the golden butterfly a test spin though with a substantial amount of money .. that makes more sense to me than the pp .

betting equal amounts of money on anything but equal chances of playing out was just not appealing to me .
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 9:56 am

Something tells me you'll be test-spinning things forever. If you're retired, why not just pick a conservative allocation and stick with it?
It seems like sticking with a plan is more important than the plan itself, as long as it's not too crazy. Like one of the lazy portfolios or, yes, Golden Butterfly.
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Re: Buy bonds now or wait

Post by mathjak107 » Thu Mar 09, 2017 10:00 am

for 30 years i have always had the portfolio adapt to better fit the big picture . nothing that will ever cause a whole lot of long term harm but just enough to make it worth it .

since things sold off after the election it looked like a good time for the gb vs a year ago . i hold the allocation in retirement at 40-50% equity no matter what i do .

so far the gb is lagging my fidelity insight model after being a bit ahead .so time will tell if it was a wise move
Last edited by mathjak107 on Thu Mar 09, 2017 10:03 am, edited 1 time in total.
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 10:03 am

sophie wrote: BTW has anyone noticed, the Fidelity US Treasury money market has dropped its minimum investment from $25,000 to $2,500? I don't see whether it still has checkwriting privileges though.
I had not noticed.
I did just log onto fidelity to see my EDV purchase, which Fidelity calls "VANGUARD WORLD FD EXTENDED DURATION TREAS ETF SHS." World? ???

Well, it has the same ticker and same price as what Vanguard calls "Extended Duration Treasury ETF", so I won't panic yet. But, I'll have to ask them about this.
(THEY WROTE BACK: Didn't clear up the name discrepancy, but it's the same product, they said).
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 10:36 am

Vanguard just announced an upcoming webcast, "The role of bonds in your portfolio." Probably doesn't apply to us. O0
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Re: Buy bonds now or wait

Post by buddtholomew » Thu Mar 09, 2017 10:49 am

Purchased a small batch of TLT to maintain FI allocation.
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Re: Buy bonds now or wait

Post by sophie » Thu Mar 09, 2017 10:54 am

dualstow wrote:Something tells me you'll be test-spinning things forever. If you're retired, why not just pick a conservative allocation and stick with it?
It seems like sticking with a plan is more important than the plan itself, as long as it's not too crazy. Like one of the lazy portfolios or, yes, Golden Butterfly.
Rock on, dualstow! I was hit over the head with this when I backtested several portfolios in the drawdown phase over a 30 year period. They all ended up growing by a ridiculous amount, making it clear that very, very few people manage to stick with a passive investing plan - but that most people probably should.

Mathjack, you do have great insights to offer, but I feel the need to periodically remind people that you are not a passive portfolio investor at all, let alone a PP investor. Frankly I think most of your posts belong in the "variable portfolio" section, since they typically concern market timing strategies.
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Re: Buy bonds now or wait

Post by mathjak107 » Thu Mar 09, 2017 10:58 am

i agree with you . but that does not mean that the points are not something to think about whether you are dynamically nudging things or buying and dying with a set portfolio .

right now i have all the concerns a pp user has , namely if rates continue rising longer term and 3 or 4 asset classes in the butterfly continue dropping because of rates we all have problems .. there are days the gb performs on par like 100% equity when all parts move together . that can be pretty volatile at times .

there are a few days the last few weeks the losses have exceed the insight growth model which is 100% equity . so i would say there are the same concerns all around about the effect of rising rates ..
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 11:19 am

sophie wrote:Rock on,
Well, I move about as much as a rock, which is good for investing.
mathjak107 wrote: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.
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Re: Buy bonds now or wait

Post by mathjak107 » Thu Mar 09, 2017 1:56 pm

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 .
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 2:17 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
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. O0
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Re: Buy bonds now or wait

Post by farjean2 » Thu Mar 09, 2017 2:38 pm

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).
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 2:42 pm

farjean2 wrote: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? ???
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Re: Buy bonds now or wait

Post by farjean2 » Thu Mar 09, 2017 2:50 pm

dualstow wrote:
farjean2 wrote: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.
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Re: Buy bonds now or wait

Post by dualstow » Thu Mar 09, 2017 2:52 pm

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. O0 )
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Re: Buy bonds now or wait

Post by farjean2 » Thu Mar 09, 2017 2:57 pm

dualstow wrote: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. O0 )
Yes, I did. Just checked my records to make sure I wasn't propagating fake news. That was my first and highest purchase price.
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Re: Buy bonds now or wait

Post by sophie » Fri Mar 10, 2017 8:56 am

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 ..
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.
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Re: Buy bonds now or wait

Post by mathjak107 » Fri Mar 10, 2017 9:07 am

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 .
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Re: Buy bonds now or wait

Post by dualstow » Fri Mar 10, 2017 9:11 am

mathjak107 wrote: about 1/2 the gains I had are now gone the last few weeks .
How could you let that happen? Very irresponsible of you. ;)
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Re: Buy bonds now or wait

Post by mathjak107 » Fri Mar 10, 2017 9:13 am

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 .
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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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