Gyroscopic Investing

When I first started out with the PP I was buying TLT for convenience instead of buying my own bonds before realizing how easy it was through Fidelity. When I did a rollover from my 401k after retiring last year I thought I would just throw the bond portion into TLT for the time being, not knowing how the rising interest rate environment might play out and thinking that might be safer.

Well, I just looked after the announced rate hike and TLT is WAY down compared to my individual bonds.

Any thoughts?

as rates go up and bonds are replaced your interest from TLT will go up offsetting the drop , your individual bond yields will never go up .

as long as you hold tlt for about 18 years you will get the original interest rate you bought it at . just like holding a bond to maturity more or less .

Having to sell the bonds when ~20 years are left is the part I like the least.
I still prefer indy bonds, though.

I really like Guggenheim's defined-maturity ETFs for this reason:

http://gi.guggenheiminvestments.com/pro ... oduct-list

They don't have any for Treasuries, though, but I hope they'll have them in the future.

If you have a bond fund, and interest rates rise, you immediately see a decrease in the share price. So you "feel" a loss.

You may say, "Ah, jeez, I wish I had been holding individual bonds, which I could just hold to maturity!"

But if you really did hold these individual bonds to maturity, the value lost on decreased coupon payments would be exactly the same as if you took the capital loss upfront, and then bought new bonds at the higher interest rate.

The only difference is, with individual bonds, you don't pay for the loss of value upfront, you pay over time, but it's the exact same amount of money in Present Value terms.

But do you really intend to hold 20-30 year bonds to maturity? In the PP, you have to sell them at 20, and buy new 30s, right? So, you get hit exactly the same way as if you were in a bond fund. Your sales price will be depressed in a higher interest rate environment.

No free lunch.

Lang wrote:I really like Guggenheim's defined-maturity ETFs for this reason:

http://gi.guggenheiminvestments.com/pro ... oduct-list

They don't have any for Treasuries, though, but I hope they'll have them in the future.

Looks interesting. I clicked one, and it says "The Fund does not seek to return any predetermined amount at maturity. " Hmm.

I get that for bond funds that never terminate, but...

"

ochotona wrote:If you have a bond fund, and interest rates rise, you immediately see a decrease in the share price. So you "feel" a loss.

You may say, "Ah, jeez, I wish I had been holding individual bonds, which I could just hold to maturity!"

But if you really did hold these individual bonds to maturity, the value lost on decreased coupon payments would be exactly the same as if you took the capital loss upfront, and then bought new bonds at the higher interest rate.

The only difference is, with individual bonds, you don't pay for the loss of value upfront, you pay over time, but it's the exact same amount of money in Present Value terms.

There could be a difference in taxes paid, though. And of course, taking the capital loss and buying new bonds entails transaction costs.

dualstow wrote:

Lang wrote:I really like Guggenheim's defined-maturity ETFs for this reason:

http://gi.guggenheiminvestments.com/pro ... oduct-list

They don't have any for Treasuries, though, but I hope they'll have them in the future.

Looks interesting. I clicked one, and it says "The Fund does not seek to return any predetermined amount at maturity. " Hmm.

I get that for bond funds that never terminate, but...

"

I think they just mean that it's not an actively-managed fund.

ahh

Assuming you get your money back, you buy this instead of a Vanguard corp bond fund like VCIT when you have a time-related goal?

Lang wrote:

ochotona wrote:If you have a bond fund, and interest rates rise, you immediately see a decrease in the share price. So you "feel" a loss.

You may say, "Ah, jeez, I wish I had been holding individual bonds, which I could just hold to maturity!"

But if you really did hold these individual bonds to maturity, the value lost on decreased coupon payments would be exactly the same as if you took the capital loss upfront, and then bought new bonds at the higher interest rate.

The only difference is, with individual bonds, you don't pay for the loss of value upfront, you pay over time, but it's the exact same amount of money in Present Value terms.

There could be a difference in taxes paid, though. And of course, taking the capital loss and buying new bonds entails transaction costs.

in the end it is still pretty close . in fact with corporate bonds a good fund manager can see increases in credit worthiness on the portfolio which would boost things more than individual bonds that don't see a boost .

ity is more a myth about individual bonds being better if rates rise than how it plays out in the real world

dualstow wrote:Assuming you get your money back, you buy this instead of a Vanguard corp bond fund like VCIT when you have a time-related goal?

Pretty much.

Lang wrote:

dualstow wrote:Assuming you get your money back, you buy this instead of a Vanguard corp bond fund like VCIT when you have a time-related goal?

Pretty much.

Supposedly, we small-fry retailer investors get screwed over when we try to buy corp bonds directly.
In my vp, I have experimented with;
A) zero-coupon treasury bonds
B) Google and GE Bonds
and
C) VCIT (mentioned above).

This is all in tax-sheltered accounts, which are kind of small and (A) and (B) are mere nibbles.

This guggenheim product line is not cheap, but I suppose it's a nice way to replace (B) above without getting screwed on the price.

dualstow wrote: ↑Wed Mar 15, 2017 7:33 pm Having to sell the bonds when ~20 years are left is the part I like the least.
I still prefer indy bonds, though.

If you bought bonds at 30 years how many times have you actually had to have done this? You'd have had to have owned the bonds for 10 years? For how long have you been in the Permanent Portfolio? Or, were you speaking prospectively?

Vinny

yankees60 wrote: ↑Fri Jan 24, 2020 10:29 pm

dualstow wrote: ↑Wed Mar 15, 2017 7:33 pm Having to sell the bonds when ~20 years are left is the part I like the least.
I still prefer indy bonds, though.

If you bought bonds at 30 years how many times have you actually had to have done this? You'd have had to have owned the bonds for 10 years? For how long have you been in the Permanent Portfolio? Or, were you speaking prospectively?

How come you sign your name after every post?
I think I started in 2010. My earliest bought long bond is due November 2040 so this is the first year that I’m facing the prospect of selling.

I get to sell some bonds in taxable next year (2041 vintage), which I'm not looking forward to because they're about 20% up on the buy price.

I figure I'm not likely to avoid most capital gains taxes in the future though, so in a way I'm not avoiding pain, just taking it a bit early. Thinking to use Fidelity's new long term treasury mutual fund instead though. It's so much easier than buying and selling bonds - I've found that selling can get pretty tricky.

I even have a bond in a tax-advantaged account that I've tried several times to sell (just to consolidate) and have been unable to because the trade order keeps coming up with errors. When I've sold in the past I can get around the errors by selling at market price while the bond markets are open. This I can't even do with this particular bond for some strange reason.

sophie wrote: ↑Sat Jan 25, 2020 9:13 am I get to sell some bonds in taxable next year (2041 vintage), which I'm not looking forward to because they're about 20% up on the buy price.
...

How much interest are they paying, Sophie? Like 3⅛%?

dualstow wrote: ↑Sat Jan 25, 2020 9:32 am

sophie wrote: ↑Sat Jan 25, 2020 9:13 am I get to sell some bonds in taxable next year (2041 vintage), which I'm not looking forward to because they're about 20% up on the buy price.
...

How much interest are they paying, Sophie? Like 3⅛%?

I have some 2041 bonds and that’s what they are paying, 3.125%.

Not too shabby.

dualstow wrote: ↑Fri Jan 24, 2020 10:41 pm
How come you sign your name after every post?

Because that is what I do in every email I send. And, any private messages I send here. Otherwise my real name is not showing.

Over the decades I've been on many email discussion lists and it was normal for people both to sign their names after each post plus use their real names. What is the reason why so many here do not use their real names in any way? It was highly irregular in all those email discussion lists to NOT use their real names.

Vinny

MangoMan wrote: ↑Sat Jan 25, 2020 12:27 pm

yankees60 wrote: ↑Sat Jan 25, 2020 12:21 pm

dualstow wrote: ↑Fri Jan 24, 2020 10:41 pm
How come you sign your name after every post?

Because that is what I do in every email I send. And, any private messages I send here. Otherwise my real name is not showing.

Over the decades I've been on many email discussion lists and it was normal for people both to sign their names after each post plus use their real names. What is the reason why so many here do not use their real names in any way? It was highly irregular in all those email discussion lists to NOT use their real names.

Vinny

Can't speak for others, but with some of the things that get posted here, financial and otherwise, I prefer my anonymity.

It had crossed my mind that it might be due to personal financial matters being disclosed. But, on the other hand, I'd wonder if it was a newer trend as financial matters would not be the reason why the same (not using real names) is done on a discussion forum primarily discussing one major league baseball team.

Vinny

yankees60 wrote: ↑Sat Jan 25, 2020 12:21 pm What is the reason why so many here do not use their real names in any way? It was highly irregular in all those email discussion lists to NOT use their real names.

Unfortunately, my real name is Keanu Reeves, and I don’t want to cause any trouble with that other guy. He’s so nice.
No, it’s what pug said.

• One always has the option to reveal one’s real name in a private message or at an in-person meeting, but you never know if you’re going to rub a random psycho the wrong way — especially if you occasionally spout obnoxious bombast like I do — and it’s just not worth it. You cannot undo a public name reveal. Just ask Jan Van- I still remember when his handle had the rest of his name.

• How do we even know when someone uses a normal-sounding name and photo (on twitter, for example), that it’s really that person? I’m not talking about celebrities or officials with blue checks, of course.

dualstow wrote: ↑Sat Jan 25, 2020 9:32 am

sophie wrote: ↑Sat Jan 25, 2020 9:13 am I get to sell some bonds in taxable next year (2041 vintage), which I'm not looking forward to because they're about 20% up on the buy price.
...

How much interest are they paying, Sophie? Like 3⅛%?

Yup, 3.125%. They've got a year to go before they turn into PP pumpkins, but I'll enjoy this in the meantime.

Ah, the Pumpkin Portfolio. A classic.