Gyroscopic Investing

I was looking into Vanguard options for the bond portion of the PP.

I had always assumed VGLT (LT Government ETF) was the ETF of VUSTX (LT Treasury Fund), but it is not.  VGLT is the ETF class of an institutional fund and, at least at present, the portfolios of VGLT and VUSTX are different.  VUSTX currently holds mortgage-backed securities, while VGLT does not.  VGLT does hold some agency bonds, though, about 8% at the last semi-annual report.  The average maturity of VGLT is about 23 years, while VUSTX is about 20 years.

So a mix of VGLT and EDV might be closer to the PP mark than EDV and VUSTX.

The last time I did a tax loss harvest I sold my taxable TLT and bought EDV and VGLT 50/50 split. Funny at the time I thought I would be buying TLT back after 31 days but both EDV and VGLT both went up: as of todays date EDV is up more than 15.5 % and VGLT is up 8.25% at some point I may have to rebalance the EDV and VGLT back to the 50/50 split. I think that some extra rise in EDV is beacuse EDV dividends are paid quarterly so it rises extra untill dividend pay out.

steve wrote:The last time I did a tax loss harvest I sold my taxable TLT

The potential for tax-loss harvesting in the PP is an interesting aspect of the strategy, and the TLT and EDV/VGLT paring looks good for that use.

I'm not fully PP compliant by any means at this point (I have a small "test" PP) but I am considering implementing the strategy.  Given the high valuations of gold and LT bonds (I know, can't predict the future, etc.), the potential for tax-loss harvesting might make the transition to the PP easier (not that tax-loss harvesting is a good thing). 

While the stock component is an obvious candidate for taxable accounts, I can see both gold and long-term bonds there as well.  Gold because it does not throw off any dividends, and although LT bonds do throw off interest payments, at least the interest is not taxable at the state level (I'm in a high state tax location).

From a wash-sale standpoint, VTI and VOO seem to pair well, the bond mix mentioned earlier also works, but what about gold?  GLD or GTU to CEF?

Clive wrote:Between all of the holdings it might be possible to harvest some tax offsets.

It does get a bit complex with the typical complement of taxable and tax-deferred accounts.  Locating some of the more volatile assets in taxable space at least offers the possibility that losses could be harvested.

WildAboutHarry wrote:VUSTX currently holds mortgage-backed securities, while VGLT does not.  VGLT does hold some agency bonds, though, about 8% at the last semi-annual report. 

Hi WildAboutHarry.  Thx you for your post, because it sparked my curiosity to check the current holdings of TLT, EDV, VUSTX, VGLT.

Basically TLT & EDV all US Treasuries except a trivial <=1% cash; VUSTX & VGLT each have significant non-UST bonds. Details on this post http://gyroscopicinvesting.com/forum/in ... topic=1139

BTW WildAboutHarry, could you explain the signficance of government agency bonds, vs govt mortgage-backed securities.  My understanding from a PP perspective these are both "non US Treasury junk that one should avoid".  In other words gov agency bonds are as bad as govt mortgage-backed securities.  Pls elaborate on this if you wish.  I know little about non-US Treasury bond types, & their associated risk profiles.

In "Inflation Proofing Your Investments", Harry indicated that agencies and mortgages were probably not worth the hassle, but if you did go this route that you only purchase "full faith and credit" instruments.

Mortgage bonds from Ginnie Mae were and still are "full faith and credit" bonds, guaranteed by the US.  Fannies and Freddies were not explicitly, but are now, guaranteed by the US.  Larry Swedroe on Bogleheads does not like mortgages for a number of reasons (prepayment risk, etc.). 

Agency bonds are issued by a mix of government-sponsored entities.  VGLT lists TVA bonds among its 8% or so agencies.  Although I always assumed TVA bonds were backed by the US, they are not.

Both mortgages and agencies are not ideal from a PP perspective.  But it is very difficult to find a long-term "government" or "treasury" fund (aside from TLT, etc.) that does not have some of this stuff in it.  VGLT seems to be a reasonable, low-cost, mostly treasury offering and a bit better than VUSTX from a PP perspective.