Gyroscopic Investing

The HBPP recommends buying 30 year LTT and selling at 20 years.

Is this optimal?

I ask the question because of what I noticed on Friday regards typical bond allocations:

tlt -1.07%
edv -1.53%
UNITED STATES TREAS BDS 2.75000% 08/15/2042  -1.76%

We commonly use TLT to represent the LTT performance. However, yesterday, TLT performed much less worse than the bond (at least a bond close to 30 years to maturity). Even EDV didn't suffer as much as the US T-bond indicated above.

For comparison, VTI was + 0.44% on Friday.

Does the 30 year bond have too much volatility? I ask realizing this is just a single days end result...I'm wondering if anyone has looked into this already.

Might it be better to hold, bonds that mature in, say 23 years, and exchange them each year for "new" bonds w/ 23 years left? Especially if you can hold the bonds in a retirement acct w/ no transaction costs.

Remember that volatility is a two-edged sword. We want the individual assets to be volatile. You'd lose upside potential by shortening the duration. Of course, if you knew that interest rates would rise, you wouldn't just want to shorten the duration; you might want to avoid bonds entirely. But that gets to the age old question: DO you know that interest rates will rise, and when?

Pointedstick wrote: Remember that volatility is a two-edged sword. We want the individual assets to be volatile. You'd lose upside potential by shortening the duration. Of course, if you knew that interest rates would rise, you wouldn't just want to shorten the duration; you might want to avoid bonds entirely. But that gets to the age old question: DO you know that interest rates will rise, and when?

+1

Last time I looked TLT has an avg maturity of around 28 yrs and VGLT was a tick over 24 yrs. I wouldn't go under 24 yrs with any fund. But I also wouldn't obsess about optimum maturity. Whatever that is will change with market conditions. Just hold long term treasuries and if you use an ETF try not to go below 24 yrs.

I'm assuming you're using a Vanguard brokerage account for your 30-year bond? I happen to have that exact same bond in both Vanguard and Schwab brokerage accounts, and here are the two listed price changes for Friday:

Vanguard: -1.76%
Schwab: -1.22%

I've seen this kind of discrepancy in listed bond price changes between brokerages before. Sometimes it's because one brokerage's listed bond prices are delayed by a day relative to the other brokerage. But on top of that, I've gotten the impression that each brokerage has its own method of estimating bond prices.

Another thing to consider is that EDV has net assets of only $550 million. By comparison, TLT has net assets of $3.58 billion, so it's much more liquid. So it's likely that EDV's daily price reflects a sizeable premium or discount relative to the zero-coupon Treasury market.

The average durations of TLT, your 30-year bond, and EDV are about 17, 20, and 25 years, respectively. So your bond should be more volatile than TLT, and EDV should be even more volatile than your bond. I think if you continue to watch the three of them, you'll see that that is indeed the case, and that Friday's apparent discrepancy was just a fluke.