Gyroscopic Investing

I am wondering which one is preferable: TLT ot ZROZ.

ZROZ seems to react more strongly to interest rate changes which would indicate to me that the avg term to maturity is longer.

the way bonds have been getting pounded i would not go zroz

mathjak107 wrote: the way bonds have been getting pounded i would not go zroz

Or, put another way, TLT has been plenty volatile over the last several months. When interest rates are low, small moves in price have a big impact. I'm no expert in risk parity but a fund with the average duration of TLT returned plenty during the bond run up of 2014. So far this year, it has been giving those gains back in equally dramatic fashion.

As an aside, I think when rates are low, rebalancing more frequently out of bonds makes sense for me. I don't think bonds will make a move that brings them up to 35% of the portfolio but I do think there's still money to be made in them. Others will disagree with that thought.

See the bond FAQ:
https://web.archive.org/web/20160324133 ... ation-faq/

In an orthodox PP, the bonds are 30 year coupon treasury bonds that are sold after 10 years. So the portfolio holds bonds with maturities 20-30 years. AFAIK the only fund in the world that holds 20-30 year coupon treasuries is TLT.

ZROZ (and the similar and frequently-mentioned EDV) hold zero-coupon bonds, which are not the same thing as coupon bonds. Close, but not identical, so TLT is preferable. As the OP noted, zeroes have more interest rate volatility than coupon bonds.

KevinW wrote: ZROZ (and the similar and frequently-mentioned EDV) hold zero-coupon bonds, which are not the same thing as coupon bonds. Close, but not identical, so TLT is preferable. As the OP noted, zeroes have more interest rate volatility than coupon bonds.

Isn't interest rate volatility precisely why we want to hold long term bonds in the PP?

economicsjunkie wrote: Isn't interest rate volatility precisely why we want to hold long term bonds in the PP?

Yes. But the problem is that zeroes are significantly more volatile than a stock index fund or physical gold. So you'd need to do something like leverage stock and gold, or decrease the bond allocation, to compensate. It's simpler to just sick with coupon bonds.

Many years ago when i first tried the pp we used benham capital target date zero coupon funds .

The longest date available was the 2015 target fund. It seemed soooooo far off as far as maturity date.

Go figure ,here i am today