pors wrote: ↑Tue May 11, 2021 4:08 am
My LTT allocation is almost hitting the lower band. All other assets are more or less at 20% (I have a GB portfolio), which means I'll buy a bunch of LTT's.
What do you consider to be the lower band for the GB?
pors wrote: ↑Tue May 11, 2021 4:08 am
I'd like to follow the PP/GB rebalancing rules by the letter, but it would be good to hear why that might be a good thing . Anyone?
Again, what does following the rules by the letter mean to you?
I use the rebalancing bands that were discussed here on the forum a while ago, basically the PP rebalancing bands for a 5-fund portfolio: the lower band is 14% the higher band is 26%.
Rules by the letter: when a band is hit, rebalance all allocations back to 20% (from the PP book).
sophie wrote: ↑Tue May 11, 2021 9:30 am
Whenever you rebalance, almost by definition you feel like you're about to make huge mistake.
Because, you're selling assets that have shot up in value and that everyone is dazzled by and wants to buy more of.
And you're buying assets that have gone into the crapper and that everyone is telling you to avoid like the plague.
The only way to do this is to make it as mechanical a process as possible. Keep your judgment out of it, once you've decided on an allocation and band limits. Don't think about timing. When you pick an allocation & band limits you are by definition giving up on the idea of market timing.
Over time, you will find that you'll win more than you lose by doing it this way. Here's an exercise you may find helpful: Each year, we take a poll to see which asset we think will win in the coming year. The poll winners have been wrong 100% of the time!! In other words, trying to predict what is going to happen and then adjusting your investments according to your prediction is a dangerous game that's likely to turn out much worse than a passive scheme.
Thanks. That was exactly why I chose to invest in a PP/GB portfolio.
jalanlong wrote: ↑Tue May 11, 2021 9:47 am
I buy that argument on assets that depend on sentiment to move. But LTT’s don’t depend on investor sentiment as much as they are based on rates and therefore are mathematically constrained. At a current yield of 2.24%, there is only so high LTTs can go mathematically.
But if it is all mathematics, why did my LTT's (German bunds BTW) do so well last year? The rates didn't change as far as I know?
I read somewhere (I think in one of Tyler's blog posts) that in time of fear large institutions escape into LTT's until the storm is over.
I would never compare anything in Europe when it comes to rates ….the govt wants rates negative there ..
Their banking system is terrible when it comes to loaning out money to small borrowers…
Negative rates acts as a tax on bank reserves so it compels the banks to lend ..
We have no such problem here nor do we want negative bond rates.
In any case while we can never say never odds are slim Tlt won’t be a weight ……I think betting so much on Tlt is not going to pan out well …..I would sooner have a higher equity level then so much riding on rates if I have to bet on something.
Odds are on any given day Tlt is down. But worse is a years interest can be gone in one session
Compared to the damage and volatility the pp is seeing the old model I went back to is nothing like that , it acts as the conservative model it should be and not like the pp’s 75% equities like moves
buddtholomew wrote: ↑Wed May 12, 2021 1:11 pm
PP is reduced to rubble as usual.
Might as well be 75% stocks.
Time to close the cover on this book and look elsewhere.
I wonder how many users have already either given up or else broke rank and turned it into some dr Frankenstein version of the pp altering it from its design because they lost faith in it in today’s world.
It seems many are second guessing rebalancing in to Tlt or just changing the allocation.
Funny how many pick on equities and what if this and what if that happens or what if going forward does not repeat the same for stocks , yet when the same what if’s are mentioned about LT BONDS and a 40 year bull in bonds they find every way to defend them
The PP isn’t for people who check the markets and their balances every day. Sometimes I go months without knowing what the DJIA is at. The PP has done about what I had hoped, over the long run. Maybe not yesterday (so I gather), but I couldn’t care less.
Yeah but ITTs don't move like my zeros did when covid hit. As I have mentioned over and over the rebalance from long bonds to stocks during that event was huge. All these little moves are noise. Based on all the LTT doomsdaying here my guess is we will see a pop there within the next few months...just wait til stimmy money runs out, congress is mired in morass, and corporate profits don't live up to heavenly expectations.
doodle wrote: ↑Thu May 13, 2021 11:55 am
Yeah but ITTs don't move like my zeros did when covid hit. As I have mentioned over and over the rebalance from long bonds to stocks during that event was huge. All these little moves are noise. Based on all the LTT doomsdaying here my guess is we will see a pop there within the next few months...just wait til stimmy money runs out, congress is mired in morass, and corporate profits don't live up to heavenly expectations.
no one is talking abourt zeros which are way different from tlt . nor are we talking leveraged long term bond funds
if someone is shying away from tlt they dont want zeros
doodle wrote: ↑Thu May 13, 2021 11:55 am
Based on all the LTT doomsdaying here my guess is we will see a pop there within the next few months...just wait til stimmy money runs out, congress is mired in morass, and corporate profits don't live up to heavenly expectations.
Oh, LTTs will definitely see a big pop now and then during stock market downturns and certain crises. I've never disputed that.
In the recent LTT threads I've just pointed out that LTT upside is capped by the interest rate floor of zero (or slightly below zero).
LTTs may pop for a year or even two, but they can't pop consistently for, say, 10 years since they'll hit the interest rate floor before that point.
What I keep asking myself is how much I should allocate to a volatile asset that provides temporary (say, 1- or 2-year) pops, but long-term just bounces up and down instead of trending upward.
Kriegsspiel wrote: ↑Tue May 11, 2021 6:34 pm
Interest rates could also offer rebalancing opportunities while bouncing between 0 and 3%, we really don't know.
I’ve done tons of simulations involving volatility harvesting via rebalancing. It always adds less than 1% to the CAGR.
The asset expected return always dominates.
That said, I still hold long bonds. Because I suck at predicting.
An extra 1% on CAGR is not necessarily something to sneeze at, especially if the CAGR is low. Like you, I'm not sure what to do with any of this information either!
doodle wrote: ↑Thu May 13, 2021 11:55 am
Yeah but ITTs don't move like my zeros did when covid hit. As I have mentioned over and over the rebalance from long bonds to stocks during that event was huge. All these little moves are noise. Based on all the LTT doomsdaying here my guess is we will see a pop there within the next few months...just wait til stimmy money runs out, congress is mired in morass, and corporate profits don't live up to heavenly expectations.
Zeroes did pop 17% last Feb and March when Covid hit. But they have dropped almost 20% since then with several months of -8% declines. So how much did that pop cost you if you stayed in after March? Unless we are in for a long, slow period of deflation with constantly dropping rates, how does that periodic pop help you long term?
pors wrote: ↑Tue May 11, 2021 4:08 am
With all the talk of inflation, I'm worried that this might be the worst moment to buy LTT. Inflation could trigger an interest increase I read.
I actually think that the FED is very likely to let inflation run much more than many investors think without any rate increases. I’m not worried about seeing an increase in rates this year certainly. Yields could of course begin to rise under market pressures but I strongly suspect the FED will do what it can to limit this.
Could certainly be wrong which is why I practice the PP.
Important to be clear about duration and also not to put too much faith in looking at LTT performance in the March 2020 rear view mirror.
If you follow the PP gospel specs you're selling your 30 year bonds when they reach 25 years of remaining duration and buying new 30's. The cash meanwhile is in a Treasury MM fund with essentially no duration. Weighted average duration is thus 12-15 years. TLT is an inexact proxy (with a ridiculous expense ratio) for actual Treasuries. Anyway the point is that the specified duration of the cash + LTT half of the PP is at the long end of any reasonable definition of "intermediate" and there's no way 25% in plain vanilla TSM can rescue the portfolio when LTT's turn toxic, gold is struggling and cash is returning nothing.
The classic risk:reward duration sweet spot for intermediate Treasuries was around 5 years (per Annette Thau, Swedroe, etc.). A lot of funds and ETFs have extended the duration of their holdings in recent years (Total Bond Market among them) in a reach for yield. Personally I like VSIGX/VGIT because the duration is 5.6 years and expenses are rock bottom.
Another useful rule of thumb is Larry Swedroe's suggestion that each additional year of duration needs to be compensated with at least 20 basis points of yield. Beyond 10 years at current rates it's all risk, no reward unless your crystal ball says Japan-style inflation is imminent and that the Fed will be okay with negative LTT rates going forward.
What about the idea that the average duration of my bonds should roughly correspond with how long I plan to hold them? I'm in my mid-50s, so maybe I have 40 more years for my portfolio to last. Thus, on average I may hold any one bond for 20 years. Shouldn't my average bond duration be 20 years also?
Or maybe I should only look at the withdrawal phase. I'm hoping to retire at age 60. Maybe I'll have say 36 years of withdrawals. So maybe my average bond duration should be 18 years when I get to age 60.
doodle wrote: ↑Thu May 13, 2021 11:55 am
Yeah but ITTs don't move like my zeros did when covid hit. As I have mentioned over and over the rebalance from long bonds to stocks during that event was huge. All these little moves are noise. Based on all the LTT doomsdaying here my guess is we will see a pop there within the next few months...just wait til stimmy money runs out, congress is mired in morass, and corporate profits don't live up to heavenly expectations.
Zeroes did pop 17% last Feb and March when Covid hit. But they have dropped almost 20% since then with several months of -8% declines. So how much did that pop cost you if you stayed in after March? Unless we are in for a long, slow period of deflation with constantly dropping rates, how does that periodic pop help you long term?
I'm talking about the timeframe of purchasing them around 100 to 110 and selling them at 170+.....thats more like a 60% return. That and the subsequent rebalance into stocks basically made my decade. I should mention my rebalances extend past the normal points...kind of momentum style. So when treasuries are sold I took them down to 20 and stocks up to 30. That helps with the inevitable falls I think once things go parabolic.
I've been selling off stocks for about a month now...since about 3900 level on up. We'll see if that was a good or bad decision. I still hold all four assets but Im making a bet we are due for a decline here sooner or later. Things have been awfully frothy.
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. Anyone?
