The Bond Dream Room

Discussion of the Bond portion of the Permanent Portfolio

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ochotona
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Re: The Bond Dream Room

Post by ochotona » Fri May 18, 2018 5:14 am

boglerdude wrote:
Thu May 17, 2018 10:53 pm
Is there a web page calculator for bond funds

You plug in:
Amount purchased
Fund duration
Rate purchased at
Average interest rate over your holding period of X years ?

And it tells you what you can sell for after X years

I started my PP with EDV in late 2016, yield was 2.33% >:( so if it stays at 3.17% when do I get my money back
You possibly don't get your principal back with most bond fund. Only with a bond or bond fund with a fixed maturity date.

Your EDV lost value exactly in the amount to compensate for rising interest rates, the opportunity cost of holding a bond with a lower interest rate. The same kind of actual bond lost exactly the same value, but the fund has no fixed maturity date, so the pain goes on and on.
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sophie
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Re: The Bond Dream Room

Post by sophie » Fri May 18, 2018 6:51 am

dualstow wrote:
Thu May 17, 2018 7:46 am
sophie wrote:
Thu May 17, 2018 7:36 am
However you're right...I've just joined the "PP hypocrite" club I guess. I'm still keeping enough bonds to be in balance though.
Keeping enough- does that include buying more if it drops below 15%?
I'm at 15% right now.
Yes. I'm at 21%. Bonds dropping to 15% means the yields will have gone up quite a bit - 4% maybe? And, I'm waiting on the opportunity to tax loss harvest.

Budd I'm still sticking with the program. Just ratcheting down the bond-buying during this rare instance of a free lunch: an asset being actively and transparently manipulated to go down in the next couple of years. But, despite what the Fed is trying to do the bond market isn't entirely under its control, so I am not going to reduce my holdings - I'm not quite as brave as dualstow! Also note I'm still auto-investing in gold, which is also in the doghouse at the moment, and in stocks, which are not but have those high valuations that are making everyone nervous. Fortunately the PP keeps grinding along anyway.
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pugchief
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Re: The Bond Dream Room

Post by pugchief » Fri May 18, 2018 8:15 am

ochotona wrote:
Fri May 18, 2018 5:14 am

You possibly don't get your principal back with most bond fund. Only with a bond or bond fund with a fixed maturity date.

Your EDV lost value exactly in the amount to compensate for rising interest rates, the opportunity cost of holding a bond with a lower interest rate. The same kind of actual bond lost exactly the same value, but the fund has no fixed maturity date, so the pain goes on and on.
Why does this fallacy keep resurfacing here? If you hold a bond with a fixed maturity in a rising market, the pain still 'goes on and on' but you don't notice it because it is hidden in the lost opportunity of investing the unreturned principal in a similar bond with a higher coupon.

In spite of everything people post on the internet, there is no difference between bonds and bond funds in relation to profit/loss.
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Re: The Bond Dream Room

Post by dualstow » Fri May 18, 2018 8:29 am

pug beat me to it.
I hold corporate bond funds in my vp, and although I feel the psychological comfort of individually held bonds, I could hear a thousand boglehead voices in my ear after that post, ocho. O0
sophie wrote:
Fri May 18, 2018 6:51 am
But, despite what the Fed is trying to do the bond market isn't entirely under its control, so I am not going to reduce my holdings - I'm not quite as brave as dualstow!
--> my edit
not quite as brave chicken-hearted as dualstow!

Thank you for your kindness, anyway. O0
Yeah, I guess my bond share was close to 20% before I sold off some.
What's left is yielding 3.88%, I think, and I will keep that.

Now I just have to decide whether to leave the proceeds in Vanguard Prime MM or buy some 1- or 2-year treasurys.
Last edited by dualstow on Fri May 18, 2018 8:36 am, edited 1 time in total.
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jhogue
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Re: The Bond Dream Room

Post by jhogue » Fri May 18, 2018 10:02 am

dualstow,

If you have a big slug of cash headed for STTs, don't forget to consider sophie's "tax trickery." Just recently, I saw some high coupon (8-9%) 30 year T-bonds maturing in 1-2 years that would be good candidates.
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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dualstow
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Re: The Bond Dream Room

Post by dualstow » Fri May 18, 2018 11:06 am

Thank you. I'll definitely take a look!
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ochotona
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Re: The Bond Dream Room

Post by ochotona » Fri May 18, 2018 12:39 pm

You guys are exactly correct, the financial loss from bonds and bond funds is the same when interest rates rise, but somehow the emotional experience is different. That's what I meant when I wrote "the pain goes on and on". With a bond the loss is easier to ignore.
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Re: The Bond Dream Room

Post by sophie » Sat May 19, 2018 7:01 am

ochotona wrote:
Fri May 18, 2018 12:39 pm
You guys are exactly correct, the financial loss from bonds and bond funds is the same when interest rates rise, but somehow the emotional experience is different. That's what I meant when I wrote "the pain goes on and on". With a bond the loss is easier to ignore.
How so?

The capital gain/loss column still applies to individual bonds. The red color is fully visible. I try to remember that it is more than offset by the coupon payments I've been collecting.

The reason to hold bond funds (IMHO) is that you can use them to accumulate contributions, then at some point you switch them to an individual bond. And with a fund, you get that instant gratification of interest payments monthly instead of every 6 months.

jhogue thanks for the pointer to those high interest 30 years! I looked a while ago and didn't see anything, but I wasn't looking to go beyond one year.
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ochotona
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Re: The Bond Dream Room

Post by ochotona » Sat May 19, 2018 7:25 am

I think for some people there is the appeal that "I'm going to get all of my original money back", of course their brain is not tracking the opportunity cost. I hear this alot.
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Re: The Bond Dream Room

Post by dualstow » Wed May 23, 2018 9:49 am

ochotona wrote:
Sat May 19, 2018 7:25 am
I think for some people there is the appeal that "I'm going to get all of my original money back", of course their brain is not tracking the opportunity cost. I hear this alot.
I bought some BIV ( a bond etf) for my wife, some years ago. She does not run a pp.
She’ll get her money back but it would feel strange to sell at a negative, even if non-reinvested dividends end up making her whole.

I’ll let her make the call, but I know that if I had bought, say, 3-year notes, she could just count down to the calendar date when her cash is “released.” Terrible “mental accounting.”
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Re: The Bond Dream Room

Post by buddtholomew » Tue May 29, 2018 11:29 am

Classic...I thought my TLT purchased at 118 was dead money...
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dualstow
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Re: The Bond Dream Room

Post by dualstow » Tue May 29, 2018 12:35 pm

heh heh O0
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