Gyroscopic Investing

As with Cash in Sweden buying Long term Treasury bonds requires a minimum order of 1 million SEK.

If one looks at the charts of how how the TLT ETF behaves in comparison to the S&P index. One can clearly see that it mirrors the index, specially obvious is the October spike.

There are of course mutual funds that deal in long term bonds in Sweden. However these funds are definitely not acting like they are expected to do. The funds purchases besides treasury bonds also commercial bonds, municipal bonds and mortgages. The best of these mutual funds AMF räntefond lång have no October spike whatsoever. It did react to the financial crisis of 2008 but only by a 15% gain instead of 30% as it should have.

I am at a loss what to invest in what would fulfill the role of long term bonds. One option would of course be to purchase the TLT ETF. However I would be vulnerable to the foreign currency exchange of USDSEK which doesn't seem to be correlated to the bonds.  Comparing the TLT ETF and USDSEK shows that in the financial crisis of 2008 they values followed each other but during the financial crisis of 2011 however they did not!

Any advice whatsoever would be really appreciated.

You're thinking too small.  Sweden is part of the EU right?  So for the EU it is Germany's bonds that are the go-to.  You should not focus on local stocks or bonds only.  Go EU wide so that you can have the proper bond protection.

It's part of the EU but not of the Euro Area. The SEK is not pegged to the Euro like Denmark's krone is.

I did some historical charting of the performance for the Swedish Stock Market(Avanza Zero) combined with either the Swedish Mutual Fund(AMF) or the iShare TLT ETF including the USDSEK exchange in the yield:


Both combinations fare well even under heavy stress such as in 2008 and 2011. However, iShare+Swedish stocks has better overall yield and almost half the volatility. So I will purchase the ETF.

I don't really know anything about Sweden but am I right in thinking that you had a Sweden specific (rather than global) crisis in 1991 and 1992 http://en.wikipedia.org/wiki/Swedish_banking_rescue?

To my mind that is the sort of event that it would be great to back-test through to check out an "expedient bodge" version of the HBPP that used currency hedged TLT or whatever. If you can get hold of the historical data, you could do a backtest with Swedish 30year treasury bonds and compare that with a currency hedged US 30year treasury version. My guess is that you would lose the event specific price rise in the bonds. Very controversially, might it be worth considering using unhedged TLT in the hope that the currency swing would be in your favor if there was a Sweden specific crisis so as to compensate?

It really is a pest that you can only buy the Swedish bonds in units of 1000000. In the UK we can get UK bonds in units of £1. They are the easiest part of the UK-HBPP.

One option is to use the approach I suggested in the cash thread, and merge the cash and bond allocations into a single 50% intermediate term treasury allocation. Kill two birds with one stone.

I also like MachineGhost's idea of implementing a Eurozone PP. IIRC there are plenty of PP-compatible Eurozone funds available.

KevinW wrote: One option is to use the approach I suggested in the cash thread, and merge the cash and bond allocations into a single 50% intermediate term treasury allocation. Kill two birds with one stone.

I also like MachineGhost's idea of implementing a Eurozone PP. IIRC there are plenty of PP-compatible Eurozone funds available.

Why would a eurozone HBPP be relevant for someone in Sweden any more than for someone in the UK or US or Japan or whatever?
Just asking.

I do not want to touch anything EUR, the whole concept is a farce and I trust the US government far above the EU government to pay their debts.

You know anything about these lottery bonds?

https://www.riksgalden.se/en/savings/Pr ... igationer/

I couldn't find the duration but they guarantee your principal back and guarantee returns if you buy enough.


Also, the National Debt Savings seems like a good place for cash.

https://www.riksgalden.se/en/savings/Na ... t-savings/

whatchamacallit wrote: You know anything about these lottery bonds?

https://www.riksgalden.se/en/savings/Pr ... igationer/

I couldn't find the duration but they guarantee your principal back and guarantee returns if you buy enough.

These lottery bonds are short term bonds with a maturation of 5 years. Id est, they should probably be regarded as deep cash.
There is a guaranteed interest of 0,7% per year for the bonds that are sold this year if one purchases a minimum of 10 bonds in serial sequence. With a price of 5 000 SEK per bond that would mean a minimum order of 50 000 SEK for a guaranteed interest. You will always be returned your money so one could purchase a single bond if one would like but then you wouldn't be guaranteed any interest. The lottery feature of the bonds means that there is a minimal chance of winning up to 1 million SEK each year tax-free.

whatchamacallit wrote: Also, the National Debt Savings seems like a good place for cash.

https://www.riksgalden.se/en/savings/Na ... t-savings/

The national debt saving account will cease to exist in 2015.

Another swede here who's reached the same conclusion. It's a bit bizarre that there are no options to invest in our governments long term debt for the average citizen, but I guess most of the population is caught up in the real estate rally, and to some extent the stock market.

I will definitely go for TLT. I have also considered adding debt from another developed economy, such as the UK, to diversify across currencies. Would this be ill-advised?

aeon wrote: Another swede here who's reached the same conclusion. It's a bit bizarre that there are no options to invest in our governments long term debt for the average citizen, but I guess most of the population is caught up in the real estate rally, and to some extent the stock market.

I will definitely go for TLT. I have also considered adding debt from another developed economy, such as the UK, to diversify across currencies. Would this be ill-advised?

Bonds from United Kingdoms may be an option. I haven't done any research on the subject.

I like bonds from the United States because the dollar is the world currency and it has a large economy and the biggest army in the world to back it. In my book that is very credit worthy and I would be very surprised if they defaulted on their debts. I also like the ease of which I can purchase these The US Treasury bonds of 20+ years through the TLT ETF, exactly the assets that I want!

I did some additional research on US bonds vs the Swedish mixed bonds mutual fund.

• I could only find data for the Swedish mutual fund back to 1999. For the numbers further in the past, I used the price of Swedish Treasury bonds.
• I could only find data for the TLT back to 2003. For the numbers further in the past, I used the price of the US Treasy bonds.
• I could only find data for the Swedish Index fund Avanza Zero which I use back to 2000. For the numbers further in the past, I used the OMX index.

To summarize my findings.

• Nothing could save Sweden from the Swedish banking crisis in 1990 but the US bonds recovered far faster.
• In 1994, USD plummeted against the SEK and the negative impact was enhanced.
• In 200, 2005, 2008 and 2014, the USD gained considerably compared to SEK and boosted the positive effects.

The TLT is a far better suited as a hedge against the stock index fund than the Swedish mixed bond mutual fund is. The Swedish mutual fund simply does not have enough volatility to cancel out a crash in the Stock market.
Their is a slight currency risk with the US dollar. Their exists years in the past where the exchange rate enhanced the negative effect but their also exists years where the exchange rate boosted the positive effects. In times of deflation I can only hope that the Swedish Krona falls in comparison to the dollar and boost the deflationary hedge that long term bonds are supposed to fill according to Harry Browne.

The average return is far greater with TLT in comparison to the Swedish mixed bond mutual fund. 16 times the return of money instead of a mere 6 times return.

I would take a combination of US $ and EUR €:

TLT for the € part
iShares Euro Government Bond 15-30yr UCITS ETF for the € part
which part ? I think depending on the correlation of the SEK and the $/€. The higher the correlation the higher part.
Or just plain simple 50/50 %.
Or add UK bonds as a third hedge.

... and another swede here.

I noticed the mutual funds has high correlation with 10 year bond return (SPP vs bond, correlation 0.95 on monthly returns since 2003).
But the volatility is too low 3.3%/year vs 6.0% for the bond, and the bond also has too low volatility.

What about:

• 12�% TLT ETF (or other international diversification with correct duration)
• 25% Mutual fund
• 12�% Cash

(and probably the stocks split 50/50 foreign/swedish)

Compared to a swedish PP, that could only be built in theory, this adds currency risk and credit risk and probably still has a bit too low volatility.

The volatility would be higher than for the theoretical PP, but I don't think long term return should be, perhaps even a little better return due to higher yield from corporate bonds.

I ended up going:

• 25% Avanza Zero
• 25% TLT
• 25% Gold
• 25% Cash in bank(1% interest)

I admit that's more elegant, but ...

I intend to view my private and mandatory pension savings as one portfolio. I can't have gold or TLT there, and prefer not to have cash there either. I won't be able to contribute 3x what my employer contributes each month.
With my intended setup I "only" have to contribute as much as my employer does.

(let's not nitpick if it is me or my employer who contributes to my pension. And also I'm a bit divided to if I could consider "free" and "locked" capital as one portfolio, but I'll meditate on that for a while.)

The Swedish government seem to be able to set the date for when one is also eligable to withdraw from once private pensions as they just announced they will be raising the age limit for private pensions.

I consider any private pension that my employers purchase to be a black hole, just like the public pension. I expect I will see no money from neither.

I no longer doubt it's a bad idea considering pension and private money as the same bag of money.

Most of the volatility, and probably most of the return, would end up in the pension account. And then be taxed to oblivion.

Outright confiscation I don't believe in, but there's already an annual capital tax and on withdrawal pension is taxed higher than income from work. By raising the age limit to 61-65, not allowing faster payout than 20 years, doubling capital tax and raising income tax the result will be more or less the same.

lordmetroid wrote:

• 25% Avanza Zero
• 25% TLT
• 25% Gold
• 25% Cash in bank(1% interest)

How do you feel about the possibility of TLT going down 20% and losing another 20% on the exchange rate? Or are you focusing more on the possiblity of the opposite?

I am not particulary worried about it.
I got two asset classes in US dollars(Long term treasuries and Gold) and two in Swedish kronor(Cash and Stocks). So even if I elimiated the TLT I would still be invested in dolars, there is no way around it but living in the states.

I am however rather confindent that the dollar will increase in value when the swedish economy is bad and from my navelgazing graphs I posted previously this seems to be the case.

lordmetroid wrote: and from my navelgazing graphs I posted previously this seems to be the case.

Are you sure your data is correct, the early AMF returns seems suspicious. Sure they're not calculated from not dividend-adjusted NAVs?

Using your returns for 1999- (and for the last 10 years those returns was the same as I found in factsheets) the difference between iShares and AMF could be explained by the fx rate. iShares won big before -99, maybe because of bad data, and then maintained the lead.

I'm trying to make up my mind about bonds before I break 15+% gold

For 1999-2014:
AMF+SIX 7,0% annualized return with 13,3% stdev
iShares+SIX 8,4% return 14,4% stdev

I am starting to second guess my choice of TLT, the added volatility of the USD may not be what one would wish for. I tried to find anything good for bonds denominated in SEK but could not find anything. What do you use?

Let us know when (if  ) you find a decent solution. It's strange that there's not even a fund with 7-10 years goverment bonds.

I have an odd mix because of earlier sins, but track a model PP with 1:2:1 cash, SPP obligation and TLT. When the model PP hits rebalance I will clean up my portfolio. I don't want to sell half the portfolio until I'm sure what to do with the bond part.

I have accepted that volatility will be larger in a non-US PP, but I think (and my backtests also) that recovery after a crash should be much shorter than equity/bond-portfolio. I have also come to the conlusion that volatility measured as standard deviation doesn't bother me much, but large drawdown does, and especially long recovery times.

Hello,

What do you think about EUROPEAN PP ?

Will it work in the long future?


Regards & Thank you.

For me? Not until we're in the Euro.
Will the Euro hold? Probably.

European PP=Bund and some european index?