Gyroscopic Investing

I was reading about the "risks" of TLT, and they do seem real(ish?)

Pointedstick (what a great name!)  in a past post had shown TLO as a alternative

It looks to track right with TLT and seems to fit the criteria of a suitable bond investment for the PP

I was hoping Mr. Craigr would comment on this.

not to be too much of a kiss ***, but im a huge fan of this site, the book and theory and really appreciate all the learning i have done in the short time since i have learned about the PP

I feel like there is light after spending 20+ years with the std financial advice pablum

Thank you all, and the executive members of the group for your continued insight

Welcome to the forum.

Harry Browne recommended buying bonds directly if you can as it eliminates fund manager risk, etc. This is what I do myself because I don't mind the initial setup and because you infrequently have to sell the bonds it is not a problem to maintain it.

Now if you can't build a bond ladder (or don't want to), then TLT or TLO would be fine as long as you are aware of the slight risks associated with using a fund. Some investors may prefer the convenience of this and that's understandable. It just depends on what you need for your situation. Each investor is going to be different.

Cyclinginmaryland wrote: I was reading about the "risks" of TLT, and they do seem real(ish?)

Pointedstick (what a great name!)  in a past post had shown TLO as a alternative

It looks to track right with TLT and seems to fit the criteria of a suitable bond investment for the PP

I was hoping Mr. Craigr would comment on this.

not to be too much of a kiss ***, but im a huge fan of this site, the book and theory and really appreciate all the learning i have done in the short time since i have learned about the PP

I feel like there is light after spending 20+ years with the std financial advice pablum

Thank you all, and the executive members of the group for your continued insight

Hi and I will add my welcome to the forum and second Craig's observation that holding your LTTs directly is the ideal and safest route. But to address your question about TLO versus TLT...

A quick glance at TLO shows that it has an expense ration of .14% which is more or less the same as TLT. So you're good on that. A very quick check showed that as of August of 2012 TLO had an average maturity of about 24 years vice closer to 28 for TLT. Advantage TLT but that's not unacceptable. We definitely don't want to go under 20 years. Amount under management; TLO has about $41 million whereas TLT has around $3.5 billion. Huge advantage TLT on that one. The larger the fund the less likely it is to be rattled if a big investor yanks his/her money.

I also note that both funds allow some wiggle room for holding assets not directly connected to their respective index. In TLO's case that can be up to 20%. I haven't seen what the actual numbers are. In TLT's case its only 10% and I recall from another thread that they are close to 99% in actual index related securities. The difference in allowed latitude could potentially be problematic. And finally I note that TLO is pegged to a 10 year + Treasury index according to their fund profile on Yahoo Finance. Whereas TLT explicitly says 20+ years. Both however reference Barclay's. It's possible that both are in fact using the same index. But if so TLO hasn't made that very clear.

All of this suggests that if you are opting to go with an ETF for now I think TLT is best of breed.

Having said that I will reiterate Craig's advice that direct ownership of LTTs is your best course for minimizing risk. How risky is TLT? Well that depends on who you ask. But they are allowed to loan out (for their profit, not yours) a percentage of the bonds they hold supposedly on your account. Those loans are almost certainly to entities who are short selling LTTs. That in itself is not worrying. But the question has been raised, if there were a serious crisis and the price of LTTs exploded could the shorts cover their positions and return what they had borrowed?

I believe the likelihood of such a scenario occurring is miniscule... but that is not the same thing as nonexistent. For the record I think TLT is very, if not perfectly, safe. On a scale of 1-5 I would give it a 4.5. But yeah if you want the 5 buy your bonds directly.

Caveat emptor.

Edit: The inevitable typos.

Welcome, Cyclinginmaryland.

For the record, I don't own any TLO myself. Or TLT, for that matter. I mostly have Real Bonds™ with a small amount of EDV in one account for convenience.

Thank you all for your opinions and guidance

I am at Schwab and am positioned now with 20% in TLT and 5% in LTT purchased via the Schwab website. I did the 5%. As a initial trial to see how the transaction looked and how it tracked to TLT

Based on this, I will unwind the TLT and purchase the LTT's

My current understanding is that I should purchase the LTT's with the longest maturity available. If this is not correct, please comment

The classic question is if I should should do this now or wait to the rebalance. Im thinking just do it and let the PP do its thing over the long term.

If your TLT position is down since you bought it you might just as well do it now and claim the loss on your taxes.

I agree with AO -- TLO is a little too thinly traded for my tastes.  You might want to take a look at EDV. 

First time poster here and fairly new to investing and the Permanent Portfolio. I'd like to resurrect this thread since my brokerage window with Schwab offers TLO commission free. It looks like the expense ratio has dropped to 0.1% and total net assets increased to ~$177 million. All else being equal, I'd rather own the ETF since it pays dividends monthly and can be traded in smaller units. According to the prospectus, it holds 100% treasuries with an average maturity of 25.02 years - https://www.spdrs.com/product/fund.seam?ticker=tlo

I did purchase ~$2000 in Treasury Bonds a couple of days ago at 3.375% with maturity on 5/15/2044 just to get my feet wet, but can't see how to sell them. Might need to call Schwab for guidance.

I appreciate any input you all have.

FWIW, I've since bought TLO in my Schwab account. And I don't recommend buying actual bonds with Schwab: each bond costs %75 to sell! What a racket.

Yikes! That's good to know. What made you decide to start owning this fund?

Looks like I unwittingly broke Harry Browne's Rule #9 

atrus138 wrote: Yikes! That's good to know. What made you decide to start owning this fund?

When I found out about Schwab's ridiculous Bond sale fee.