TLT considered harmful

[Bean]

What happened to Slotine?

I think the one of the other forum threads got to him, based on his last few post my guess is the one on Boston.

[MachineGhost]

I think the one of the other forum threads got to him, based on his last few post my guess is the one on Boston.

Immigration.

[foglifter]

I hope my question justifies bringing this thread back to life (temporarily).


Part of my bond allocation is in a tax-deferred TD Ameritrade account, hence both TLT and EDV are available commission-free. Since TLT has been deemed problematic I've been buying EDV over the last few years. Now that the balance grew up I would like to bring the volatility down so it's closer to TLT. I looked at the list of zero-commission ETFs and found IEI, which is a 3-7 years intermediate bond ETF with average duration 4.55 years. It's an iShares product, which is probably bad, but maybe less bad than TLT. I was contemplating using an EDV/IEI mix as a substitute for TLT. ETFreplay tells me that a mix of ~58/42 EDV/IEI would behave pretty much like TLT.


Am I over-engineering here? Should I just sell EDV and simply buy TLT? 

[sophie]

After reading this thread (finally) I'm more convinced than ever that buying 30 year treasuries via brokerages is the way to go.  All the major brokerages allow you to buy either new issues or secondaries, although there may be fees and inconveniences incurred when you sell.  Goodasgold could you just transfer that IRA to a brokerage that allows you to buy the bonds directly?

I do keep some money in TLT in each of my PP accounts (except taxable) but it's mainly to accumulate funds in between Treasury bond purchases.

Of note, you can buy bonds at Treasury Direct, but you're limited to new issues and you have to transfer to a brokerage to sell them.

[Greg]

After reading this thread (finally) I'm more convinced than ever that buying 30 year treasuries via brokerages is the way to go.  All the major brokerages allow you to buy either new issues or secondaries, although there may be fees and inconveniences incurred when you sell.  Goodasgold could you just transfer that IRA to a brokerage that allows you to buy the bonds directly?

I do keep some money in TLT in each of my PP accounts (except taxable) but it's mainly to accumulate funds in between Treasury bond purchases.

Of note, you can buy bonds at Treasury Direct, but you're limited to new issues and you have to transfer to a brokerage to sell them.

I bought TLT today because I'm doing tax loss harvesting between TLT and individual 30 year bonds. If TLT goes up in 30 days, I'll keep it for the year and then sell it since I'm still in the 0% long-term capital gains group. If it goes down in 30 days, I'll switch back to a 30 year bond again and pocket that tax loss as well.

[foglifter]

I'm aware of the goodness of individual bonds and I do buy them directly in my other account, which is a Fidelity IRA. This account has limitations as it acts as a brokerage window in my HSA account. I can't move the money from it anywhere and I don't want to use it for anything but Treasury bonds to avoid state taxes (yes, CA doesn't recognize HSAs). So, my question is pretty much limited to choosing between ETFs. Either 100% TLT, or EDV/IEI.

[dualstow]

After reading this thread (finally) I'm more convinced than ever that buying 30 year treasuries via brokerages is the way to go. 
...

I bought TLT today because I'm doing tax loss harvesting between TLT and individual 30 year bonds. If TLT goes up in 30 days, I'll keep it for the year and then sell it since I'm still in the 0% long-term capital gains group. If it goes down in 30 days, I'll switch back to a 30 year bond again and pocket that tax loss as well.

I'm in the 0% bracket for long-term gains, which means I don't do any harvesting at all.
Does that make sense? I assume you mean, Greg, that you're in 0% because you haven't overdone it with gains, but maybe you mean you're in a low bracket. In which case, do you need to do any tax loss harvesting ever?

[Xan]

Right, dualstow.  It seems to me that if you're in an income bracket where your capital gains rate is 0%, this is the time to capture GAINS, not losses.

[Greg]

After reading this thread (finally) I'm more convinced than ever that buying 30 year treasuries via brokerages is the way to go. 
...

I bought TLT today because I'm doing tax loss harvesting between TLT and individual 30 year bonds. If TLT goes up in 30 days, I'll keep it for the year and then sell it since I'm still in the 0% long-term capital gains group. If it goes down in 30 days, I'll switch back to a 30 year bond again and pocket that tax loss as well.

I'm in the 0% bracket for long-term gains, which means I don't do any harvesting at all.
Does that make sense? I assume you mean, Greg, that you're in 0% because you haven't overdone it with gains, but maybe you mean you're in a low bracket. In which case, do you need to do any tax loss harvesting ever?

Unless I have something incorrect, I do tax-loss harvesting for long vs. short. I'm currently in the 15% tax bracket. If I sell at a loss within the first year, I can claim that for the 15% capital gains short-term loss. If I know I'm going to have a gain, I hold it for over a year, let it turn into a long-term gain, and sell at 0% federal capital gains.

Kinda a heads I win, tails you lose to the tax-man so to speak.

[rickb]

Per the latest annual report I can find, Black Rock has currently loaned out about 39% of the bonds it "owns" in TLT.  This shows up as short term investments in the schedule of investments (p. 26).  The cash collateral they've received for these loans is primarily (90%) in Black Rock's institutional MM fund.

It looks like about 40% of IEI's holding are loaned out as well (p. 22), with the collateral for these loans also primarily (86%) in their institutional MM fund.

In contrast, Vanguard's latest semi-annual report for EDV shows no assets attributed to lending activities.  I don't know for sure that they don't hide this in some other statement, but I would think it would show up in the annual/semi-annual reports.

[mathjak107]

considering that i owned a money market that went belly up and i lost a bit of money in it ,  swapping what is considered the safest investment in the world for one that has already demonstrated failure  goes against the pp principals .

there is a reason it does not use corporate bonds and money markets with commercial paper  .

[dualstow]

...
do you need to do any tax loss harvesting ever?

Unless I have something incorrect, I do tax-loss harvesting for long vs. short. I'm currently in the 15% tax bracket. If I sell at a loss within the first year, I can claim that for the 15% capital gains short-term loss. If I know I'm going to have a gain, I hold it for over a year, let it turn into a long-term gain, and sell at 0% federal capital gains.

Kinda a heads I win, tails you lose to the tax-man so to speak.

Ah, I think I get it. Though I don't play it that way, I see what you mean. Long & short.
I guess I *do* do something like that with risky individual stocks, but it's driven more by cutting my losses on something that may never come back.

[Greg]

...
do you need to do any tax loss harvesting ever?

Unless I have something incorrect, I do tax-loss harvesting for long vs. short. I'm currently in the 15% tax bracket. If I sell at a loss within the first year, I can claim that for the 15% capital gains short-term loss. If I know I'm going to have a gain, I hold it for over a year, let it turn into a long-term gain, and sell at 0% federal capital gains.

Kinda a heads I win, tails you lose to the tax-man so to speak.

Ah, I think I get it. Though I don't play it that way, I see what you mean. Long & short.
I guess I *do* do something like that with risky individual stocks, but it's driven more by cutting my losses on something that may never come back.

That does work but I'm trying to keep the same asset allocations, just switching to save on taxes. Go straight from bond fund to individual bonds and back again. Looks to me at least to be a free lunch, even if a little risky with TLT (also that I am making the assumption that this wouldn't qualify for a wash-sale).

[dualstow]

Good point about the potential wash sale risk. I'm more like Sophie. Sold my last TLT and have pure 30-year bonds now. It's like switching to looser pants, very liberating.

[MachineGhost]

I hope my question justifies bringing this thread back to life (temporarily).
Am I over-engineering here? Should I just sell EDV and simply buy TLT? 

You could just use Fidelity and buy Treasuries for free as sophie pointed out, or you could use Schwab and buy TLO for free.  TLO may be safer than iShares.  Someone want to find out?

[foglifter]

I hope my question justifies bringing this thread back to life (temporarily).
Am I over-engineering here? Should I just sell EDV and simply buy TLT? 

You could just use Fidelity and buy Treasuries for free as sophie pointed out, or you could use Schwab and buy TLO for free.  TLO may be safer than iShares.  Someone want to find out?

I do have Treasuries at Fidelity as part of my bond allocation. I'm just trying to figure out how to use my HSA funds in PP. Based on what rickb mentioned IEI has the same bond-loaning issues as TLT. Perhaps I could just keep a reduced %% of EDV to compensate for extra volatility and avoid IEI at all.

[sophie]

I'm aware of the goodness of individual bonds and I do buy them directly in my other account, which is a Fidelity IRA. This account has limitations as it acts as a brokerage window in my HSA account. I can't move the money from it anywhere and I don't want to use it for anything but Treasury bonds to avoid state taxes (yes, CA doesn't recognize HSAs). So, my question is pretty much limited to choosing between ETFs. Either 100% TLT, or EDV/IEI.

I think in this situation I'd just go with EDV.  Although it's zeros rather than bonds, it still focuses on the 20-30 year vintages and in a fund, the fact that it's zeroes shouldn't matter - the main issue with holding them directly is that you're supposed to pay taxes on the unrealized gains annually.  Harry Browne mentioned them on a radio show and didn't have any specific problems with them otherwise.

Good point about the state tax situation - I expect EDV would work out best for you as it does appear to be truly 100% treasuries.

[MachineGhost]

I do have Treasuries at Fidelity as part of my bond allocation. I'm just trying to figure out how to use my HSA funds in PP. Based on what rickb mentioned IEI has the same bond-loaning issues as TLT. Perhaps I could just keep a reduced %% of EDV to compensate for extra volatility and avoid IEI at all.

You don't need lower duration bonds, just use cash to offset the duration of EDV until its down to 17.

A better way to go is to risk paritize the PP.

[foglifter]

I do have Treasuries at Fidelity as part of my bond allocation. I'm just trying to figure out how to use my HSA funds in PP. Based on what rickb mentioned IEI has the same bond-loaning issues as TLT. Perhaps I could just keep a reduced %% of EDV to compensate for extra volatility and avoid IEI at all.

You don't need lower duration bonds, just use cash to offset the duration of EDV until its down to 17.

A better way to go is to risk paritize the PP.

Oops, I just realized that I didn't notice an elephant in the room - I can buy intermediate bonds in my Fidelity IRA and buy only EDV in my TDA account! Somehow I haven't even thought about this, now I feel ashamed I asked this question.

[sophie]

No such thing as a dumb question!  I bet a bunch of other people have similar issues.

When I was trying to maintain a PP in a gold-free Vanguard retirement account, I was making do with VUSTX which has the opposite issue (duration too short).  I  tried to balance it with zeroes in a Fidelity retirement account.  I suppose it worked ok.

Love the idea of tax gain "harvesting" by selling/buying if a year-old fund goes up, and then claiming a loss when it goes down, lather rinse repeat. If you're going to do that though, it might be better to stick with a fund because there is an expense with selling and buying 30-year Treasuries.  You'll end up paying twice the bid-ask spread with each transaction, and that might end up exceeding the fund's expense ratio if you do it often enough.

[Greg]

If you're going to do that though, it might be better to stick with a fund because there is an expense with selling and buying 30-year Treasuries.  You'll end up paying twice the bid-ask spread with each transaction, and that might end up exceeding the fund's expense ratio if you do it often enough.

I think this was answered somewhere before but are there difference bid-ask spreads for Fidelity/Vanguard/TD/etc.? For me at least, I'd be skirting around paying the 15% capital gains, so if I'm doing something to get a $1000 loss and subsequently paying $150 in taxes because of it, I would think that could dwarf certain expenses at least. (although I'm kinda hijacking this thread with these comments. I'd like to explore this idea more)

[dualstow]

Maybe it's worth a thread?

By the way, thank you, Xan, for the reply. Just saw it today.