Gyroscopic Investing

For reference, google finance has today's 30 year Bond at 3.17% and TLT at 2.73%.

2% for me. As soon as that happens, I'm selling half or more of the remaining position after any rebalancing and putting the (probably insane) profits into cash. Maybe even all of it. Below 2% nominal rates and the upside-to-downside ratio is just too hard for me to stomach.

So, no 'rebalancing band' choice? 

I suppose I have to say I'm already out in the sense that I chose not to put a recent windfall into the pp. But, that's because I have a use for it (spending). I'm not throwing the money at tech stocks either.

I rebalanced down from stocks a short while ago and am back to 25% in bonds. It's going to be painful watching long bonds go down, but I don't plan to sell them prematurely. If I did that, the yield would start falling again.

Interesting poll question!

I personally see no reason not to just stick with the portfolio.  The economic theory behind it is sound, and at the rate we are going we might even end up seeing negative yields.

Switzerland has currently 1.2% for 23 years and germany 2.2%. So you are possibly missing 25% or more gains. And because you never know where the bottom/top is, i stick to the plan for now and simply rebalance out of them when the time has come.

frommi wrote: Switzerland has currently 1.2% for 23 years and germany 2.2%. So you are possibly missing 25% or more gains. And because you never know where the bottom/top is, i stick to the plan for now and simply rebalance out of them when the time has come.

Wow, wait, what? 1.2% yields on 30 year bonds? That changes my thinking a bit.

Pointedstick wrote:

frommi wrote: Switzerland has currently 1.2% for 23 years and germany 2.2%. So you are possibly missing 25% or more gains. And because you never know where the bottom/top is, i stick to the plan for now and simply rebalance out of them when the time has come.

Wow, wait, what? 1.2% yields on 30 year bonds? That changes my thinking a bit.

Well, 23 years, not 30. But still...

Question for the 41.7% of people who don't own LTT's:

What do you do instead?  Cash?

AdamA wrote: Question for the 41.7% of people who don't own LTT's:

What do you do instead?  Cash?

But the poll question asks when we'll stop adding, not when we'll sell it all. Maybe it could have been phrased more clearly.

I am surprised by the good number with under 1%, at that point you might want to hold physical cash (not TBills). The transactional value of cash imo, more than makes up for 1% a year.

Also just to clarify, the question was when you stop adding. If you have no long bonds at all, are really still a PP?

Bean wrote: I am surprised by the good number with under 1%, at that point you might want to hold physical cash (not TBills). The transactional value of cash imo, more than makes up for 1% a year.

Also just to clarify, the question was when you stop adding. If you have no long bonds at all, are really still a PP?

Well there was no "I'll just follow the PP" option.  Within the PP framework, there is no rate under which you don't rebalance into bonds if you hit the bands.

Bean wrote: For reference, google finance has today's 30 year Bond at 3.17% and TLT at 2.73%.

Random note but I think at least for my computer the Google Finance keeps showing 3.17% for 30 year bonds while Yahoo keeps changing. They are saying it is 3.10%. I'm not sure why.

Is this a false choice?

If rates drop that low treasuries will have shot though the roof and (presuming you're already in the PP) you'll be selling LTTs rather than buying and you'll naturally be putting any new money into other lagging assets.  If you're planning to sell them all high before rates rise, good luck timing the peak. 

My bigger question is for how many consecutive years I'm able to keep throwing money at treasuries if rates start a long-term rising trend.

Technically, we all should have been completely out of both cash and bonds when real rates went negative.  The bonds are only there to wipe stocks's bum.  And cash is just a portfolio volatility dampener, though its arguably gold's bum wiper.

MachineGhost wrote: Technically, we all should have been completely out of both cash and bonds when real rates went negative.  The bonds are only there to wipe stocks's bum.  And cash is just a portfolio volatility dampener, though its arguably gold's bum wiper.

30-year treasuries aren't negative yet. It's close, but they're still yielding about 1% real, if you believe CPI-U.

Tyler wrote: Is this a false choice?

If rates drop that low treasuries will have shot though the roof and (presuming you're already in the PP) you'll be selling LTTs rather than buying and you'll naturally be putting any new money into other lagging assets.

Absolutely.  I interpreted the question as whether you'll put new contributions into bonds.  The awkward part to me is, assuming rates start going back up, at what point do you start buying new bonds?  The temptation will be strong to wait until the rates level off.

Also, remember that thread a while back on bond convexity?  The lower rates get, the more bond values will react to even small changes in the interest rate.  So a drop of 2.5% to 2.25% will increase bond values far more than, say, 3.25% to 3%.  It makes the decision on when to reduce the bond allocation a lot tougher, because there could still be a big upside even at those low rates.

Pointedstick wrote:

frommi wrote: Switzerland has currently 1.2% for 23 years and germany 2.2%. So you are possibly missing 25% or more gains. And because you never know where the bottom/top is, i stick to the plan for now and simply rebalance out of them when the time has come.

Wow, wait, what? 1.2% yields on 30 year bonds? That changes my thinking a bit.

After seeing that, I will never stop buying them (no option to vote). However, I will buy EE bonds instead while I have space available there.

whatchamacallit wrote:

Pointedstick wrote:

frommi wrote: Switzerland has currently 1.2% for 23 years and germany 2.2%. So you are possibly missing 25% or more gains. And because you never know where the bottom/top is, i stick to the plan for now and simply rebalance out of them when the time has come.

Wow, wait, what? 1.2% yields on 30 year bonds? That changes my thinking a bit.

After seeing that, I will never stop buying them (no option to vote). However, I will buy EE bonds instead while I have space available there.

EE bonds are great, but they belong in your cash bucket.  Unlike long Treasuries, the value of the bond increases only due to accrued interest.  It doesn't respond to changes in treasury yields.

I added a " I will buy no matter what!"    But I am not sure if I will let folks changes votes.

Pointedstick wrote:

MachineGhost wrote: Technically, we all should have been completely out of both cash and bonds when real rates went negative.  The bonds are only there to wipe stocks's bum.  And cash is just a portfolio volatility dampener, though its arguably gold's bum wiper.

30-year treasuries aren't negative yet. It's close, but they're still yielding about 1% real, if you believe CPI-U.

if anyone really believes inflation is below 3%....well.......that's embarassing to admit. Maybe Bernanke who doesn't actually shop for himself.

Kshartle wrote:

Pointedstick wrote:

MachineGhost wrote: Technically, we all should have been completely out of both cash and bonds when real rates went negative.  The bonds are only there to wipe stocks's bum.  And cash is just a portfolio volatility dampener, though its arguably gold's bum wiper.

30-year treasuries aren't negative yet. It's close, but they're still yielding about 1% real, if you believe CPI-U.

if anyone really believes inflation is below 3%....well.......that's embarassing to admit. Maybe Bernanke who doesn't actually shop for himself.

In the inflation thread, you admitted that your definition of inflation is essentially "growth of the money supply." IMHO, that's a more embarrassing admission. How does it make sense to estimate a value that's the intersection of supply and demand for money by only looking at supply? Using your definition, inflation should have been 10 or 20% for the past few years, no?

Pointedstick wrote: 30-year treasuries aren't negative yet. It's close, but they're still yielding about 1% real, if you believe CPI-U.

Good point.  That must be the difference between now and the stagflationary 70's.

Can't can't change vote - is that a poll option?

Pointedstick wrote: Using your definition, inflation should have been 10 or 20% for the past few years, no?

I don't know. Is that how much the money suppy is growing? That's what I think the definition of inflation is. The "inflating" of the money supply. There are so many other factors involved in prices that I really think that's a separate thing. Prices can drop even when the government is inflating (Japan).