Gyroscopic Investing

I just received the annual report for Vanguard's Extended Duration Treasury Index Fund (the ETF is ticker EDV) in the mail, and was kind of surprised to see that "for the fiscal year ended Aug 31, 2011, (the index fund) returned 1.33%" Really?

Then I saw in the Chairman's Letter that "the fund returned about -21% in the first half of the fiscal year..."
I bought in April. "...then rebounded in the second half to return about 28%..."

Volatility is good. As MT always says, it's scary to look at these assets in isolation. I suppose this will smooth out over the years, and I'll have to grit my teeth and watch EDV sink when stocks rise again, never having rebalanced. But what's the alternative? Selling out of EDV -- it's up more than 50% for me -- and having less than a permanent portfolio?

dualstow wrote: But what's the alternative? Selling out of EDV -- it's up more than 50% for me -- and having less than a permanent portfolio?

How are you using EDV?  10%/90% with PRPFX, or as a part of 4 x 25% PP?

Adam1226 wrote:

dualstow wrote: But what's the alternative? Selling out of EDV -- it's up more than 50% for me -- and having less than a permanent portfolio?

How are you using EDV?  10%/90% with PRPFX, or as a part of 4 x 25% PP?

The latter, part of the traditional HBPP.
Right now EDV makes up 12% of my bonds, with 53% directly held and 35% in TLT.
I suppose I could swap it for more 30-Years or more TLT. Is that what you were thinking?

dualstow wrote:

Adam1226 wrote:

dualstow wrote: But what's the alternative? Selling out of EDV -- it's up more than 50% for me -- and having less than a permanent portfolio?

How are you using EDV?  10%/90% with PRPFX, or as a part of 4 x 25% PP?

The latter, part of the traditional HBPP.
Right now EDV makes up 12% of my bonds, with 53% directly held and 35% in TLT.

Do you use rebalancing bands within your bond holdings?

No, I haven't. I try to just think of the bonds as one big component.
Still, a 51% rise makes me think I should do something.

I have sold TLT and bought 30-years directly in the past, but that was only for purity, like buying gold coins, and not about profit-taking.

Dualstow, are you far away from a rebalancing point? I suppose there is plenty of scope for the Euro zone to kick off wildly and so further boost US LTT but also plenty of scope for the ECB to rescue the eurozone. As always, if you rebalance early you could help or could hinder yourself. My temptation would be to sell the EDV now and stick with the coupon yielding bonds as those are more in line with the classic HB PP

There is nothing wrong with selling EDV to buy more bonds, or even move into TLT for a while.

When long term rates "spike" back up to 4.5% you can maybe move back into EDV.

This is all "off the PP reservation", of course, but I would do what helps you to sleep the best.

Sorry for the late reply, guys. I was out and about.

My total bond element is at about 31% of the whole HBPP, although less this afternoon than it was yesterday.
Is that near a rebalancing point? I don't know. ; - ) Sure feels like it, but we have seen from Clive's data that the treasurys don't rebalance frequently. (Have never rebalanced?)

I forgot one logistical point: It's easy enough to buy a bunch of treasurys in Fidelity, but the EDV is in a Roth at Vanguard. It's not quite enough to meet the minimum that I believe Vanguard requires to buy treasurys at auction. I'll have to check on that. After the next round of IRA contributions, it will be. (A clever person can now figure out how much I hold in bonds and, thus, in the pp. Don't bother).

I could swap EDV for TLT in Vanguard today, but TLT's reputation is somewhat tarnished this month, isn't it.
I'm tempted, though, by that last post from Med-Tex.

This may be why HB considered zeroes to be too volatile for the PP. 

It sounds like you started out the year with EDV at around 5%.  Why don't you sell it back down to 5% and buy TLT?

Adam1226 wrote: This may be why HB considered zeroes to be too volatile for the PP. 
It sounds like you started out the year with EDV at around 5%.  Why don't you sell it back down to 5% and buy TLT?

I should do just that.
The other possibility -- this just goes on and on! -- is that, since I'm going to max out the Fidelity 401K with fresh cash which frees me to buy tons of treasurys directly, I could sell the EDV closer to the allowable contribution date. Then, in the Roth that held that EDV, I could keep cash or stocks.

Watch, though, by the time I can make the contribution, the market will be wildly different and this ship will have sailed.

Maybe I could combine these two ideas. EDV-to-TLT now. TLT-to-real bonds later. That way I never get caught with my chaps down.

Food for thought, Clive.
I hope you don't mind if I archive that post.

dualstow wrote: Food for thought, Clive.
I hope you don't mind if I archive that post.

If you quote it, I think it will preserve it from the next "Clive purge."

Clive wrote: Just to note that the images would disappear from the Quoted copy. So right click and Save-Image if you like.

I actually took a screengrab of the text and chart together. Not the most efficient, space saving method, but I will also delete it later.

Still going over your more recent posts.

MediumTex wrote:If you quote it, I think it will preserve it from the next "Clive purge."

But won't that defeat the purpose of the purge?
Well, Clive are you worried specifically about forum accounts that can be tracked back to your ip, or will someone also pick up on your unique language patterns? There can only be one Clive, even if he one day exists only in others' quotes.  :)

preliminary capital gains for EDV $2.72 per share

https://personal.vanguard.com/us/insigh ... Channel=AN


For my long term bonds in my taxable account I had a 50/50 split EDV/VGLT Now its more like 55%EDV/45%VGLT
This is almost like an automatic rebalance.

steve wrote: preliminary capital gains for EDV $2.72 per share

https://personal.vanguard.com/us/insigh ... Channel=AN


For my long term bonds in my taxable account I had a 50/50 split EDV/VGLT Now its more like 55%EDV/45%VGLT
This is almost like an automatic rebalance.

Thanks!

I'm thinking of using EDV and TLT in a 65:35 ratio, respectively. I don't mind a little more volatility in order to have a good chance to increase total gains. I used ETFREPLAY.com to play around with the ratios...