Does a weighted maturity close to 20 years give enough bond protection?

[bswift]

If I start a lump-sum PP when I get my retirement payout, and buy bonds directly, then in about ten years, all or most of my bonds will be 20 years maturity instead of 30.  Let's assume rebalancing won't change that too much, just to make the point.

My question is, if a 2008-style panic happens when my bond maturity is 21 years instead of 30, will I still get enough oomph from my bond holding to make the PP work?

It seems like there is a huge difference between the price volatility of 30-year and 20-year bonds.  I realize this is a total worst-case scenario.  But people who choose the PP are abnormally focused on worst-cases, I would guess. 

Thanks for the very useful forum, BTW, I love it.

[MediumTex]

My question is, if a 2008-style panic happens when my bond maturity is 21 years instead of 30, will I still get enough oomph from my bond holding to make the PP work?

I would say yes.

I think that the average maturity of TLT is around 20 years, and it performed very well in 2008 as part of the overall portfolio.

[Tortoise]

bswift, it sounds like you're assuming that when you buy your bonds directly, they all have to start out at 30 years to maturity. You can certainly do it that way if you want, but you can just as easily split up your initial lump-sum bond purchase into bonds with, say, 3 or 4 different maturities between 20 and 30 years. That approach is called setting up a bond ladder.

Another option is to stick with the single-bond approach since it's simple, but replace the bond when it reaches 25 years instead of the standard 20 years.

Personally, I like my bond allocation to have an average maturity of at least 25 years, but that's just me. As Harry Browne said (and as MT just reiterated), a 20-year bond still has plenty of kick and is probably still "good enough."

FWIW, although TLT's prospectus requires it to hold only bonds with maturities of at least 20 years, right now it looks like TLT's average maturity is 28 years. Just wanted to point that out.

[stone]

The duration (price change as yield changes) sort of plateaus out as the time to maturity increases. In the UK we have undated and 50year treasury bonds but they don't actually have a duration much more than that of 25year bonds.

Having small coupon payments increases the duration.

[dualstow]

A few years ago, when Harry Browne was still doing the 'Money Talk' radio show, 30-Year Treasuries were no longer being issued by the U.S. government. HB basically said, "Buy the longest ones available."