Buy bonds now or wait

Discussion of the Bond portion of the Permanent Portfolio

Moderator: Global Moderator

barb

Buy bonds now or wait

Post by barb » Sun Dec 18, 2016 8:15 am

I'm just starting my PP and understand that you shouldn't time the market BUT it's difficult to go all in on bonds with interest rates potentially on the rise. Any thoughts on timing of getting in?
User avatar
ochotona
Executive Member
Executive Member
Posts: 3353
Joined: Fri Jan 30, 2015 5:54 am

Re: Buy bonds now or wait

Post by ochotona » Sun Dec 18, 2016 11:56 am

See thread "who understands bonds?"

If you want to invest in anything, but are worried about timing, you will feel better about it if you were to do many small monthly purchases, Like 33 months, 3% at a time. There is no award being given out for bravery AFAIK. I made a long Treasury buy in late January 2015. Look at the chart for TLO. Unlucky moment. Then, I sold when I should have held. Emotions wreck most plans. Best not to provoke yourself.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Buy bonds now or wait

Post by dualstow » Wed Mar 08, 2017 12:57 pm

Added a sliver of EDV today.
I expect it to go down, though.
Sam Bankman-Fried sentenced to 25 years
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Buy bonds now or wait

Post by mathjak107 » Wed Mar 08, 2017 1:24 pm

short term term rates and long term rates are two very different rates .

while the fed raises short term rates investors decide where long term rates go based on greed , fear and future perception of inflation .

raising short term rates can be good for curbing inflation .

what you have to remember is long term treasury bonds are generally the safe haven harbor in a flight to safety . they can soar in a heart beat if money flows out of stocks with no regard for the feds short term action .

we saw this in 2007 when the fed was raising interest rates and the bond investors saw things differently . they bid bond rates lower .

we ended up with an inverted yield curve where short term rates were higher than long term rates .

if you want long term treasury bonds to fly fighter cover , then buy them . the fact they may fall while risk is on and stocks are the favored child will likely change when stocks slip and the money flows out , this drop may be only temporary and those bonds may soar in a flight to safety ..
Last edited by mathjak107 on Wed Mar 08, 2017 2:32 pm, edited 2 times in total.
User avatar
JohnnyFactor
Full Member
Full Member
Posts: 50
Joined: Fri Jul 08, 2016 9:16 pm
Location: Canada

Re: Buy bonds now or wait

Post by JohnnyFactor » Wed Mar 08, 2017 1:26 pm

Bonds seem to be the asset that will offer the most "buying opportunities" over the next economic cycle. That's fine with me, as I'm 15 years out from retirement. At that time, I should have amassed a huge pile of bonds for cheap. Just in time for them to start going back up.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Buy bonds now or wait

Post by mathjak107 » Wed Mar 08, 2017 1:35 pm

why buy any bonds for that matter ? bonds are a vehicle for reducing short term volatility and mitigating short term drops . if you are a long term investor and are not risk averse, buying something that mitigates temporary short term drops and permanently reduces long term gains has no logic to it .

of course if you are risk averse than that is another story .

the problem with being risk averse is as a group study's by morningstar and ibbottson show no better investor behavior in balanced funds than aggressive growth funds . losing money is losing money to many risk averse investors .

so you really have to think about what your whole goal and temperament is here
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Buy bonds now or wait

Post by dualstow » Wed Mar 08, 2017 2:24 pm

mathjak107 wrote:if you want long term treasury bonds to fly fighter cover , then buy them
I bought because I was down to 20%.
Sam Bankman-Fried sentenced to 25 years
User avatar
Hal
Executive Member
Executive Member
Posts: 1349
Joined: Tue May 03, 2011 1:50 am

Re: Buy bonds now or wait

Post by Hal » Wed Mar 08, 2017 9:04 pm

FWIW

Have a read of this article.
Rather than not start a PP at all, you may wish to use cash only instead of bonds......

http://idiosyncraticwhisk.blogspot.com. ... short.html
User avatar
JohnnyFactor
Full Member
Full Member
Posts: 50
Joined: Fri Jul 08, 2016 9:16 pm
Location: Canada

Re: Buy bonds now or wait

Post by JohnnyFactor » Wed Mar 08, 2017 10:54 pm

A nice benefit of bonds is the guaranteed return if held to maturity. You receive interest payments while you hold the bond and get back the initial investment when it matures. A bond fund like TLT behaves the same way if held until the average or effective duration. No matter what happens with interest rates, you can be assured you will not lose money if held for 17.34 years (TLT).
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

Re: Buy bonds now or wait

Post by dualstow » Wed Mar 08, 2017 10:57 pm

Johnny, you can search the forum if no one chimes in about this, but you can lose purchasing power.
Sam Bankman-Fried sentenced to 25 years
User avatar
JohnnyFactor
Full Member
Full Member
Posts: 50
Joined: Fri Jul 08, 2016 9:16 pm
Location: Canada

Re: Buy bonds now or wait

Post by JohnnyFactor » Wed Mar 08, 2017 11:36 pm

Search is rejecting all my terms for being too common. Anyways, you must mean inflation. Yes, I failed to mention that and it can be significant. I can't think of anything else though.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

Re: Buy bonds now or wait

Post by mathjak107 » Thu Mar 09, 2017 2:33 am

getting repaid your 1k 17 years from now may buy half or less than what it did today . you lost 1/2 your money in purchasing power which is the same as a loss .

when you hold for the duration value you get the original amount of interest you signed on for like the interest rate you would have gotten on an individual bond . but that rate is not the current rate if rates and inflation went up , it is only the rate you got the day you bought it .

hypothetically a 10 dollar share of a bond fund with a duration of 5 , paying 5% will fall to 9.50 if rates go to 6% but you will get an extra 1% for 5 years making up for the nav . but that is only a 5% return in a 6% world . if inflation runs higher you can be left behind even worse .

throw in taxes and the damage is worse .

basically with rates this low you are counting on a flight to safety with bonds and fear ,greed and perception driving longer term bond values higher despite the feds short term moves .

at least that is why i own them at the moment . it certainly is not for locking in this interest rate for 17 years .
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

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.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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 .
User avatar
Cortopassi
Executive Member
Executive Member
Posts: 3338
Joined: Mon Feb 24, 2014 2:28 pm
Location: https://www.jwst.nasa.gov/content/webbL ... sWebb.html

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.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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.
Sam Bankman-Fried sentenced to 25 years
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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 .
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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.
Sam Bankman-Fried sentenced to 25 years
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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.
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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).
Sam Bankman-Fried sentenced to 25 years
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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
Sam Bankman-Fried sentenced to 25 years
User avatar
buddtholomew
Executive Member
Executive Member
Posts: 2464
Joined: Fri May 21, 2010 4:16 pm

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.
User avatar
sophie
Executive Member
Executive Member
Posts: 1959
Joined: Mon Apr 23, 2012 7:15 pm

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.
User avatar
mathjak107
Executive Member
Executive Member
Posts: 4456
Joined: Fri Jun 19, 2015 2:54 am
Location: bayside queens ny
Contact:

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 ..
User avatar
dualstow
Executive Member
Executive Member
Posts: 14231
Joined: Wed Oct 27, 2010 10:18 am
Location: synagogue of Satan
Contact:

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.
Sam Bankman-Fried sentenced to 25 years
Post Reply