TLT Study - Inverting History

Discussion of the Bond portion of the Permanent Portfolio

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pmward
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Re: TLT Study - Inverting History

Post by pmward » Sun May 05, 2019 10:47 am

Kevin K. wrote:
Sun May 05, 2019 9:18 am
Thanks for the wise perspective pmward! I really appreciate your thoughtful comments.

This article from just 4 days ago from Schwab supports what you and others here are saying about the dangers of going to only short duration bonds. They're not proposing barbells or ladders that go out to 30 years but I can see why a barbell of STT's and ~7 year bonds would be appealing.

https://www.schwab.com/resource-center/ ... ve-is-flat
Be careful with trusting predictions from Schwab or any other "expert" or entity. There are plenty of "experts" predicting bonds will perform poorly going forward, and just as many (if not more) that are predicting bonds to be the best asset going forward. Likewise there are plenty of experts predicting both bull and bear scenarios for both stocks and gold. How do we know who is right and who is wrong?

Harry said one of his favorite pastimes was collecting newsletters from "experts", then going back and looking at the newsletters from a year or more ago and seeing how the experts were wrong more than they were right. I've done this a few times in the past as well, and it is interesting to see. We can't really trust these people or their predictions. The best thing we can do is just hold a portfolio that is hedged against all the worst case scenarios in a way that will provide a good enough return going forward. I'm a big believer in having a VP for people (like me, and it sounds like you) that want to try to chase alpha. But it should be done responsibly, with "money you can afford to lose", and for most people they would be better off still with a VP like the golden butterfly that is a passive prosperity allocation. You should keep the money that you are counting on safe, and the best way to do that is including long term treasuries with stocks, gold, and cash. Going to a 7/1 barbell would seem pretty foolish if interest rates went negative, wouldn't it? Long term treasuries would absolutely sky rocket in that very possible scenario.

Really, I just want to play devil's advocate here more than anything. It may seem like I'm favoring a deflation scenario, but the truth is I am neutral and not sure what's going to happen. I'm just playing the other side to point out that the odds are just as good that we go the other way, and that long bonds could be the saving grace of the portfolio in the coming years. I personally could not picture removing either my LTT or gold hedge, because I think inflation and deflation are equally likely in the coming years. I see a compelling argument for both cases. If hedged properly though, it doesn't really matter which happens, there becomes no need to be fearful.
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