Gyroscopic Investing

I would like to shelter as much of the long-term bonds as possible. Given limited tax-deferred space, does it make sense to replace TLT with a smaller percentage of EDV? If so, what is the recommended ratio of TLT to EDV?

EDV is tax-inefficient, and has a tendency to pay out huge distributions at the end of the year. I have EDV in a taxable account, and if I were doing it all again, I'd probably go with individual bonds rather than the fund just for predictability's sake.

Pointedstick wrote: EDV is tax-inefficient, and has a tendency to pay out huge distributions at the end of the year. I have EDV in a taxable account, and if I were doing it all again, I'd probably go with individual bonds rather than the fund just for predictability's sake.

I plan on holding EDV in a tax-deferred account. The question is in what proportion should EDV be in relation to the other 3 components (25%?). Also if I have TLT in taxable as well, how would I calculate how much is required to maintain the appropriate bond balance?

buddtholomew wrote:

Pointedstick wrote: EDV is tax-inefficient, and has a tendency to pay out huge distributions at the end of the year. I have EDV in a taxable account, and if I were doing it all again, I'd probably go with individual bonds rather than the fund just for predictability's sake.

I plan on holding EDV in a tax-deferred account. The question is in what proportion should EDV be in relation to the other 3 components (25%?). Also if I have TLT in taxable as well, how would I calculate how much is required to maintain the appropriate bond balance?

budd,

For weightings you could do the risk parity thing. You just do your weightings by looking at 1/vol. This gives you higher weighting to less volatile instruments and lower weighting to high volatile instruments (like EDV). Volatility is a moving target but its better than nothing. Looking over long windows of time also makes it less of a moving target.

Thanks Melveyr. I would like to keep it as simple as possible and arrived at the following example:

TLT - 25K
EDV - 2/3 of 15K or 10K

Total Bonds 35K
SPY, GLD and Cash each 40K

Does this seem reasonable?

buddtholomew wrote: Thanks Melveyr. I would like to keep it as simple as possible and arrived at the following example:

TLT - 25K
EDV - 2/3 of 15K or 10K

Total Bonds 35K
SPY, GLD and Cash each 40K

Does this seem reasonable?

Seems perfectly reasonable to me. Nothing about asset allocation needs to be precise!  I understand why you value simplicity .