Moving up to 4.9%

[flyingpylon]

Regarding equities, how can some of you be so confident that you're not falling victim to recency bias? How do you know we're not on the cusp of another lost decade? I know people that retired around '99-00 that ended up making some unfortunate decisions. But hindsight is 20/20, as they say. It's a lot different when steep losses are staring you in the face.

I don't know if bonds are the answer or not. But I've been hanging around here long enough to have been through the "gold sucks" era and the "cash sucks" era. So now "bonds suck"... gosh, what's next?

Granted there are more sophisticated ways of boosting total returns while mitigating risk, but they aren't a good fit for people that desire a "lazy portfolio" and accept the tradeoffs.

[mathjak107]

with the newer alternative type investments combined with equities , they likely will run with the ball if stocks are flat .

long term bonds are unreliable as far as protecting stocks as 2022 showed .

they are old school when there was nothing better for the small investor and strategy’s like these alternative funds were only available to the wealthy via hedge funds.

these hedge fund strategies have been used for decades so they are nothing new .

what’s new is the sec approved some of these strategies in 2020 to be offered to the common man via funds and etfs

[Pointedstick]

Also, buying government bonds depends upon if you are in the accumulation phase or decumulation phase of your investing life.

You are clearly in the former while I am in the latter.

Indeed. Ultimately my conclusion was that if starting young, go for 100% stocks for your whole career, and by the time you're ready to retire, your portfolio will be so large that it literally won't make a meaningful difference if it immediately falls 50% due to a market crash.

That was probably a bit over-optimistic, and in retrospect I've adjusted my thinking a little bit to see the wisdom in de-risking before and during the "retirement red zone" that Mathjak has talked about.

But if you were in stocks for most of your accumulation phase, then once you're past that retirement red zone hump, you've pretty much won the game. Stocks, bonds, who cares. Your net worth will likely have snowballed to something truly absurd, and "risking large but survivable losses" vs "consistent but smaller average returns" are just a matter of personal preference.

Different if you're just barely surviving in retirement, of course.

[ppnewbie]

Personally, I’m a buyer of LTT’s. I’m buying the longest duration bonds I can get. Last ones I purchased were November 2054. I have enough offense, I want defense. Plus if all else fails I think 5 percent returns are OK even with high(ish) inflation.

Im also attempting to embrace contrarian thinking. Nothing scientific in this observation but it seems like everytime something is universally hated it outperforms because it’s cheap. But interest rates are complicated. 5 percent is great but if serious inflation comes back those 5 percent bonds will be losers.

Anyway I’m staying the course and will study Mathjaks stuff more but very weary of high fees and star hedge fund guys. Asnes very famously lost a bet with Buffet about his superstar abilities vs the SP500.

[mathjak107]

most of cliff asness work is about ways of enhancing one’s investing in markets not instead of it .

it isn’t about beating the s&p , it’s about improving risk vs reward beyond what conventional investing can do

a portfolio like the reaper isn’t about beating the S&P .

it is about beating a 60/40 in every respect but with less risk

[boglerdude]

mathjak what's your explanation for bitcoin's outperformance

DBMF in Four Minutes

[mathjak107]

i have no clue to be honest about bitcoin

excellent video and explanation.

the reality is that the managed futures tend to have zero correlation to bonds and stocks far more reliably than gold appears to as gold stocks and bonds tend to follow each other up and down in recent years.

as explained in the video , they really do provide that 3rd leg to the stool

[Jack Jones]

Long bonds are about ensuring you have a minimum level of income. Everybody needs some cash flow coming in, right?

[mathjak107]

so do intermediate term bonds and if an income that doesn’t change is desired then an spia is likely the best bet .

a 65 year old can see a lifetime draw rate of income of 7.65% today from an spia .thats 638 a month for 100k


i couldn’t imagine getting locked in to a rate for just about forever at these levels of record deficits poised to only grow worse.

under 5% pre tax is way to low for planning a lifetime of income around in my opinion vs the risk of having to sell sooner at a loss if needed

TLT has returned 2.49% the last 15 years cagr , pre tax . so not worth taking the risk today and going out so far on the curve.

odds are you will see higher income going shorter.

i just don’t see them anymore as the vehicle to fly fighter cover for a portfolio now that we have much better alternative type funds

[coasting]

Long bonds are about ensuring you have a minimum level of income.

As regards the PP philosophy, I understood Harry Browne to view the purpose of long bonds a little differently. His thinking being long term Treasurys are there for times when the dominant economic theme is deflation. And in that case the rationale for long duration is to provide additional price level pop (volatility) that shorter duration bonds lack. So I think of the income as kind of secondary.

While I wouldn't argue that deflation appears to be on the horizon, I have to remember from HB's "golden rules of financial safety": No one can predict the future.

[mathjak107]

long bonds though have not bern that great for hedging against market declines ..

they are only a defense in a deflationary scenario .

otherwise you are left hung out to dry pretty naked most of the time and that’s my gripe .

when 3 asset classes all react poorly to a rising rate scenario. that’s telling you that your hedging defense is not that reliable

.back in the day it’s all the small investor had so it protected against deflation but if was no help other than that ..

it was just accepted that if rates are rising your portfolio will get hit like every other portfolio.


maybe even worse because you can have 75% of the portfolio going down

[ppnewbie]

Second that.

One thing I think would be important is to say that you have appeared to have several different strategies over the years. I recall there was a (newsletter based) fidelity strategy with bitcoin thrown in for a turbo charge. then there was the bond tent, and now there is the current one.

No disrespect at all intended. You are successfully guiding a ship through potentially dangerous waters. But it may be helpful to have comparison backtest with other types of portfolios to your own. It may be true that you have done well with your portfolio but many portfolios have done quite well. My GB is killing right now.

I used to think I was a genius with my stock picking ability until I discovered backtesting and looked at VTI.

So for me it would be helpful to say I’m up X percent over a 5 year period, and the GB is up Y percent and the HBPP is up Z percent. I attribute that to substituting in CTA vs LTT’s.

Asnes’s ETF’s seem to be relatively new so we don’t know how they will do in the long term. But the one I backtested did look impressive by tracking the upside of VTI and muting the downside. Need to study your portfolio more.

Also personally I would not say don’t worry about fees. Anecdotally, I know someone who invested with the renaissance fund (the one available for extremely wealthy mere mortals). They laid a super egg and charged my friend a fortune in the process. This is the best of the best way better than Asnes.

The other thing with CTA wrappers is they are extremely complex. The fund engages individual managers. Hires and fires them. I have interacted a good bit with someone who runs a CTA fund. They are basically trying to wrap a bunch of guys day trading (discretionary) and also running their own “proprietary” algorithms as well. It’s all very expensive and variable and great if it works. Let’s see if the wrapper approach works in the long term. Historically, you give your money to one firm.

Anyway no disrespect at all. I just think this is a very nuanced discussion. Like I said thanks Mathjak! You could be the push I need to finally jump into CTA’s as a non correlated asset class. I’ve been thinking about it for a long time.

[dualstow]

So well said

[mathjak107]

while the funds are new the strategy’s are decades old.

so while market cycles may be no different, the level of risk vs rewards we can achieve as small investors is certainly different

[boglerdude]

> Long bonds are about ensuring you have a minimum level of income

Bond coupons, stock dividends, and apartments rents dont matter. You get a deal, or get burned, with the purchase price. Ive been naively holding onto a rental because rents are high. But thats priced in to the sale price

knew a hedge fund guy....the game is fees (eg u are the buyer and seller on some trades) and a narrative. Does Vanguard offer anything? They have a lot of eyeballs on them I might trust them with an active fund

[mathjak107]

well all i can say then is buy long bonds .

for me capital preservation and growth are what matters and i want the highest risk vs reward i can achieve that meets my goals in retirement.

a 4% swr has provided a minimum level of income for 123 rolling 30 year cycles so far and no bonds are even needed .


been retired for ten years now and our income comes from our portfolio regardless of the sources , whether interest , dividends or appreciation.

for that level of minimum income to hold , it is not depended on bonds

[ppnewbie]

Just looked over your post on the VP side. The post where you break the whole portfolio down is very informative. I’ll be thinking mulling it over seriously. Especially the 3x ETF’s and all the aqr etfs.

[perfect_simulation]

I'm not even trying to cherry pick data but it looks like a 100% long bond portfolio outperforms the PP from 1995 to 2021ish. Surprising. Perhaps treasuries underperforming is actually infrequent on longer time scales.

[mathjak107]

they did out perform the s&p during the lost decade .

but by the same token a simple mix of 50% equities and 50% gold has beaten a mix of equities and bonds over almost every time frame the last two decades

[Jack Jones]

Long bonds are about ensuring you have a minimum level of income.

As regards the PP philosophy, I understood Harry Browne to view the purpose of long bonds a little differently. His thinking being long term Treasurys are there for times when the dominant economic theme is deflation. And in that case the rationale for long duration is to provide additional price level pop (volatility) that shorter duration bonds lack. So I think of the income as kind of secondary.

While I wouldn't argue that deflation appears to be on the horizon, I have to remember from HB's "golden rules of financial safety": No one can predict the future.

Deflation is about a shortage of cash in society, where you may lose your usual sources of income. So I think we are barking up the same tree (deflation protection vs minimum level of income).

[mathjak107]

the point is that there are much better strategies available today to ride shotgun gun for equities then long term bonds which are to wish washy as far as protecting a portfolio and not just for using in deflation

[dualstow]

Anyway, you got me to read a couple AQR and Cliff Asness threads at b’heads (where he used to actually post).

[mathjak107]

there is a whole new way of investing out there available to us. , there are so many funds and etfs now out there that correlate differently to stocks almost all the time. not just when the planets are in correct alignment like treasury’s which left us high and dry in 2022 with nothing capable of holding the line as equities plunged .

that isn’t to say one can’t own treasury bonds , the carolina reaper uses tyd . but treasuries have severe limitations as far protection goes

i have my cash in shorter term treasuries too but nothing longer than 5 years and all the bonds have an average duration of 2.5 years .

but my point is for portfolio protection they do a half assed job and they actually need something not interest rate sensitive flying fighter cover for them too

[mathjak107]

there are funds today that can hedge your bonds

The Simplify Interest Rate Hedge ETF (PFIX) seeks to hedge interest rate movements arising from rising long-term interest rates and to benefit from market stress when fixed income volatility increases.

T­he fund holds a large position in over-the-counter (OTC) interest rate options intended to provide a direct and transparent convex exposure to large upward moves in interest rates and interest rate volatility.

Using OTC derivatives, usually only available to institutional investors, PFIX is designed to be functionally similar to owning a position in long-dated put options on 20-year US Treasury bonds. Since the option position is held for an extended period, the ETF provides a simple and transparent interest rate hedge.

this fund is up 24% over the 1 yr and has 3 year return of 40% cagr

it was up an amazing 92% in 2022

[ppnewbie]

I put in PFIX instead of LTT's. It was definitely very anticorrelated with rising interest rates. I just wish I had longer term data. Keep talking Mathjak! Also I wish I did not have to rely on a few people as my defense. The expense ratio is a very reasonable 0.5 percent.

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