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Re: Best choice: Bond Fund or CD or...
Old 10-30-2006, 09:53 PM   #21
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by brewer12345
On when to buy TIPS, that is up to you. The coupon is set by the markets requirements for real (not nominal) interest rates. Where does that come from? It in part comes from the void and in part from the other alternatives available.

If would say go ahead and buy TIPS now, but the illiquid retail secondary market will rip you apart.
If I wait and buy the remaining TIPS for my 5-yr ladder at auction in future Aprils,
I wonder where is a good place to park the cash 'til then ? I'd be tempted to use
regular Treasuries, but since this is in an IRA, the state-tax exemption is wasted.

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Re: Best choice: Bond Fund or CD or...
Old 10-31-2006, 06:57 AM   #22
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by JohnEyles
If I wait and buy the remaining TIPS for my 5-yr ladder at auction in future Aprils,
I wonder where is a good place to park the cash 'til then ? I'd be tempted to use
regular Treasuries, but since this is in an IRA, the state-tax exemption is wasted.
Maybe a CD ladder with maturities shortly before the auction dates? Schwab used to be a lousy place to buy CDs, but they have been a lot more competitive lately.
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Re: Best choice: Bond Fund or CD or...
Old 10-31-2006, 02:49 PM   #23
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Re: Best choice: Bond Fund or CD or...

Quote:
Originally Posted by brewer12345
Maybe a CD ladder with maturities shortly before the auction dates?
The way the T'Bills are headed up, the CD return seems barely higher.

Quote:
Schwab used to be a lousy place to buy CDs, but they have been a lot more competitive lately.
Looks like they're not charging a commission at all, as best I can tell.

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Re: Best choice: Bond Fund or CD or...
Old 10-31-2006, 04:48 PM   #24
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by brewer12345
You are missing a very fundamental proposition with bonds. With CDs, savings accounts, etc., returns only come from one place: the yield. With bonds, return comes from two places: yield and market value gain or loss. Since traditional treasury bonds tend to do well as the economy goes into recession, the combination of long dated treasuries with equities is a good one, since one tends to offset the other. So if you bought a 5 year CD in April, you could have gotten a 5.5% or so yield (maybe more if you shopped around). Instead, if you had bought a 5 year treasury yielding just a hair below 5%, you got the yield (5%) plus the appreciation in value (an additional 1.5 to 2%).
Put me in the "buy individual bonds and hold till maturity camp" I am not comfortable with bond funds due to lack of maturity date. I buy a bond because the yield is good and I need the income....any presumption of appreciation would be a bet on falling rates, no? If rates are rising and I want appreciation, why would I ever buy a bond or bond fund? Another confusing element about the bond funds is the return of principal...the math is not so bad. People thing they are getting X, but some of it is principal
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Re: Best choice: Bond Fund or CD or...
Old 10-31-2006, 06:52 PM   #25
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Re: Best choice: Bond Fund or CD or...

cd's are generally poor investments, period. For just about every investment climate, you can find a better investment depending on your investment goals.

Your grandpaw who had a high school education at best invested in these for a reason; cause he didn't know any better. (generalizing here... this is not specifically targeted at the OP)

Bond funds are a great choice for part of a diversified portfolio.
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Re: Best choice: Bond Fund or CD or...
Old 10-31-2006, 08:20 PM   #26
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by Azanon
cd's are generally poor investments, period. For just about every investment climate, you can find a better investment depending on your investment goals.

Your grandpaw who had a high school education at best invested in these for a reason; cause he didn't know any better. (generalizing here... this is not specifically targeted at the OP)

Bond funds are a great choice for part of a diversified portfolio.
CDs are great when you absolutely, positively need/want to have $XXX on a specific date in the future.

With a bond fund, you don't know what the NAV will be on any specific date in the future.
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Re: Best choice: Bond Fund or CD or...
Old 10-31-2006, 09:46 PM   #27
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Re: Best choice: Bond Fund or CD or...

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With a bond fund, you don't know what the NAV will be on any specific date in the future.
Agree, and that's why I call it "forever money".

JG
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 03:09 AM   #28
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Re: Best choice: Bond Fund or CD or...

cd's and money markets are a bet rates will stay the same or rise

longer term bonds are a bet rates will stay the same or fall

choose wisely
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 05:02 AM   #29
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Re: Best choice: Bond Fund or CD or...

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Agree, and that's why I call it "forever money".

JG
Absolutely, I agree with you but I see people buying bond funds in their kid's college fund when they'll need the money in 4 years.
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 06:39 AM   #30
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by JohnEyles
The way the T'Bills are headed up, the CD return seems barely higher.

Looks like they're not charging a commission at all, as best I can tell.

I wouldn't look for T bills to keep going up. If the Fed raises rates again, they won't be going too far (.25 or.5% tops) before they stop again and then start cutting rates. Personally, I think the next Fed move will be to chop rates.

Schwab doesn't charge a dirrect commission to you. They get paid by the banks.
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 07:16 AM   #31
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by mathjak107
cd's and money markets are a bet rates will stay the same or rise

longer term bonds are a bet rates will stay the same or fall

choose wisely
So why do asset allocation strategies like Bernstein's Four Pillars and ESRBob's Rational Investing use bond funds for a very significant portion of the portfolios? Are they expecting rates to fall?
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 07:26 AM   #32
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Re: Best choice: Bond Fund or CD or...

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So why do asset allocation strategies like Bernstein's Four Pillars and ESRBob's Rational Investing use bond funds for a very significant portion of the portfolios? Are they expecting rates to fall?
Because unless you are holding nothing but bonds/bond funds, what they do in isolation is meaningless. What we should be talking about is what these instruments add to a portfolio, not what they do isolation.
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 07:40 AM   #33
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Re: Best choice: Bond Fund or CD or...

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Because unless you are holding nothing but bonds/bond funds, what they do in isolation is meaningless. What we should be talking about is what these instruments add to a portfolio, not what they do isolation.
OK. Who wants to begin?
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 09:15 AM   #34
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Re: Best choice: Bond Fund or CD or...

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OK. Who wants to begin?
Perhaps Saluki can run a return and volatility analysis for a portfolio of 1/3 each Lehman Agg, EAFE, and S&P 500, and show us the stats for each asset class by itself?
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 10:05 AM   #35
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by brewer12345
Perhaps Saluki can run a return and volatility analysis for a portfolio of 1/3 each Lehman Agg, EAFE, and S&P 500, and show us the stats for each asset class by itself?
I hope he can...........I don't have the software to do it, or I would..........

Brewer, you're an analyst.........surely you can do it??
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 10:11 AM   #36
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Re: Best choice: Bond Fund or CD or...

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Brewer, you're an analyst.........surely you can do it??
Don't have the software. I look at individual securities, not asset classes.
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 10:54 AM   #37
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Re: Best choice: Bond Fund or CD or...

Quote:
Originally Posted by brewer12345
Perhaps Saluki can run a return and volatility analysis for a portfolio of 1/3 each Lehman Agg, EAFE, and S&P 500, and show us the stats for each asset class by itself?
Not Saluki, but:

From 1981-2005 [25 years]

Return Stand Dev

LBA 9.55% 0.07582
S&P 500 12.40% 0.15960
EAFE 10.66% 0.22625

1/3 mix 11.41% 0.12924

caveat emptor: these are generated from returns I've snatched off the internet [MSCI website, Vanguard.com, barra.com, etc], so someone might want to check to see if I'm right [or wrong].

- Alec
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 12:14 PM   #38
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by ats5g
Not Saluki, but:

From 1981-2005 [25 years]

Return Stand Dev

LBA 9.55% 0.07582
S&P 500 12.40% 0.15960
EAFE 10.66% 0.22625

1/3 mix 11.41% 0.12924

caveat emptor: these are generated from returns I've snatched off the internet [MSCI website, Vanguard.com, barra.com, etc], so someone might want to check to see if I'm right [or wrong].

- Alec
How do you figure Alpha, again?
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 06:45 PM   #39
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Re: Best choice: Bond Fund or CD or...

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How do you figure Alpha, again?
Hi Patrick,

I'm a little confused about what you're asking. Alpha is generally used to define the "extra" return over some benchmark that a fund generates. Alpha can also be the positive or negative return of a fund that cannot be explained by an asset pricing model, like the Capital Asset Pricing Model (CAPM) or Fama&French's 3 factor model. Since the LBA, S&P 500, and MSCI EAFE are indexes there is no alpha.

- Alec
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Re: Best choice: Bond Fund or CD or...
Old 11-01-2006, 06:59 PM   #40
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Re: Best choice: Bond Fund or CD or...

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Originally Posted by ats5g
Hi Patrick,

I'm a little confused about what you're asking. Alpha is generally used to define the "extra" return over some benchmark that a fund generates. Alpha can also be the positive or negative return of a fund that cannot be explained by an asset pricing model, like the Capital Asset Pricing Model (CAPM) or Fama&French's 3 factor model. Since the LBA, S&P 500, and MSCI EAFE are indexes there is no alpha.

- Alec
I think what Patrick really wants to look at is the Sharpe ratio.
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