Question on LTB and cash

[Jeffreyalan]

Hello. I am newly implementing the PP and i have 2 questions.

#1) I see a lot of people here recommend individual bonds instead of ETFs for the long term portion. What maturities do you buy and when do you sell?

#2) How about using 1 year cds for the cash portion?

Thanks!

Jeffrey

[barrett]

Hello. I am newly implementing the PP and i have 2 questions.

#1) I see a lot of people here recommend individual bonds instead of ETFs for the long term portion. What maturities do you buy and when do you sell?

#2) How about using 1 year cds for the cash portion?

Thanks!

Jeffrey

The standard advice is just to buy 30-year treasuries and then sell them when they get down to 20 years. Over time (say 5-10 years) you'll start to get kind of a natural treasury bond ladder, because there will likely be times when you are buying or selling bonds for rebalancing purposes.

One regular poster on here has written about Schwab charging a ridiculous fee to redeem treasuries so that's a question worth asking. I have most of mine with Fidelity and both buying & selling there is a piece of cake.

Some people use CDs for part of the cash portion though treasuries are considered safer.

Incidentally, these two questions are both covered in the PP book... highly recommended if you haven't already read it.

[boglerdude]

CDs are good.

Anybody using EDV?
https://personal.vanguard.com/us/funds/ ... undId=0930

Could you check up on that once a year and rebalance in/out of it?

Any ETF liquidity risk?

[barrett]

CDs are good.

Anybody using EDV?
https://personal.vanguard.com/us/funds/ ... undId=0930

Could you check up on that once a year and rebalance in/out of it?

Any ETF liquidity risk?

I don't know about liquidity risk but I know that EDV is really volatile due to the average duration of its bonds (24.7 years). TLT has an average duration of about 17.2 years. Looks like on Friday's big downside bond move TLT lost 1.65% and EDV lost 2.42%. Of course you make more money with EDV when rates fall. Ryan Melvey had a good article on his now-defunct website where he suggested that one could hold a lower percentage of bonds overall when using EDV. He was trying to roughly balance the volatility of gold, stocks and bonds. When holding TLT he suggested that one would hold 25% in bonds. When using EDV, he suggested a lower percentage (something like 17.5% to 20%... I forget the exact percentage).

Anyway, my point is don't be fooled into thinking that EDV is necessarily "better" just because of its great performance in a bond bull market. In a bond bear the pain would be greater holding EDV.

[Jeffreyalan]

Doesn't the book suggest the longest bonds possible? In that case EDV is better than TLT right?

[MachineGhost]

Doesn't the book suggest the longest bonds possible? In that case EDV is better than TLT right?

Use the search function. I haven't read the book, but the PP works on being at sloppy risk parity. EDV breaks that without a reduction in weight. And technically EDV is just 30-years with the interest stripped. There are no longer bonds than 30yrs in the USA.

[ochotona]

Interesting idea, diluting EDV with or short-term Treasuries. Mixing 57% EDV and 43% SCHO pretty much matches the performance of TLO. So you could take your Bonds allocation down to 14%.