Buy bonds now or wait

Discussion of the Bond portion of the Permanent Portfolio

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Dieter
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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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mathjak107
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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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Dieter
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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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