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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 07:23 PM   #61
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Re: Better inflation hedge: TIPs or Wellesley?

Quote:
Originally Posted by Cute Fuzzy Bunny
Gosh Wab, if the current yield actually WAS at a record low, and you could guess the future, and the future was completely different from the past 35 years...you might have a point.

However, the funds yield is NOT at an all time low, you cant guess the future, and i'd guess the next 35 years to be a lot like the last 35, only all mixed up a bit differently
[OK, I'll walk right into this one. I can't wait for the punchline.]

Vanguard sez the current yield on Wellesley is 4.27%. It looks like it might have been a few basis points lower in 2005, but this looks to me to be pretty close to a historic low for both stock and bond yields. Please tell us, fuzzy one, what was the historic low yield for the fund, and how did it perform during that period?

And knowing a bit of physics doesn't really help you predict the future, it just helps you know how something behaves given certain conditions. Since I don't know what the future might bring, I recommend a mix of nominals and inflation-indexed bonds for one's bond allocation, and I like Swedroe's allocation recommendations which are based on the historical performance of nominal bonds and inflation.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 08:10 AM   #62
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Re: Better inflation hedge: TIPs or Wellesley?

Ah, so almost half a point is "a few basis points". I think i'm getting a handle on your advice. Make sweeping and incorrect generalizations, ignore important details while making unimportant ones seem crucial, then make inaccurate claims about contrasting details.

Just for the record, we dont get french benefits either.

Persistence also has very little to do with physics in this case. Persistence in both weather forecasting and in investment practices simply says that what is to come is most likely a lot like what has already happened and is happening now.

Persistence is also a better predictor of the weather and investing than people are. By quite a bit.

The funny thing with persistence is that if you increase the time window from a few days/weeks to a few months or years, it stops being a good predictor. Then once you get past that to windows a few years or more, it starts becoming a better predictor again.

All along the line, in each period, the predictive abilities of people still sucks.

Which is why index funds always outperform managed funds over longer periods of time.

The common sense also turns out to be quite common but not always sensible. Four years ago when I was a heavy wellesley investor (not a single share these days) everyone here (including you) said that I should get out. Rising interest rates were going to torpedo the fund, perhaps cutting 15-20% from the asset value.

Never happened.

So while theres nothing magical about the mixture and as has been demonstrated, no particular managed fund benefit to the mix, its cheap, simple, requires very little knowledge or effort on the investors part, and it works.

In my prior analysis from a few years ago, I took the funds total returns, separated the dividends, applied that years inflation figure, and wrapped the data so the end went back to the beginning...sort of a 'mini firecalc'. In that analysis, one could have invested at any point in the funds lifespan, taken 4%, reinvested excess dividends, and never run out of money despite the effects of inflation. In fact, you'd pretty much have a nearly intact, inflation adjusted principal while taking your 4%.

Which seems a bit better than the 2% offered up by most CPI indexed securities these days.

So unless 2007-2047 is going to be markedly different than 1970 to 2007, I cant see how one can make a case for it being a "poor inflation hedge". And my crystal ball isnt working right now.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 12:13 PM   #63
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Re: Better inflation hedge: TIPs or Wellesley?

Ladies and Gentlemen of the jury:

My esteemed fuzzy colleage would have you believe that stocks are like the weather and have you place your faith in "persistence." He did his own "firecalc-like" analysis and determined that the fund will provide you with the current yield (4%) + inflation-protected principal. Just like TIPS with a 4% real yield!

My analysis is much simpler and requires no such faith. The fund is comprised of 65% nominal bonds. These bonds have an average yield of around 5%, an embedded inflation estimate of around 2.5%, and a duration of 5.7 years.

I make no predictions about future interest rates or inflation, but I can tell you that those bonds will behave in an utterly predictable fashion whatever changes may come. If rates go up by 1% due to inflation or other factors, those bonds will loose 5.7% of their value. At a 2% increase, they will loose 11.4% of their value. Of course, the same applies in the other direction as well, but we know there is a hard limit to how far rates may fall, while there is no limit on high how they may go.

And in comparison to TIPS, those nominal bonds will underperform in the long-term if inflation exceeds an average 3% over their lifetime. That is not a prediction. That is just how bonds work.

Historically, stocks have returned a rate of GDP - 2% + dividend yield. Dividends are currently near a historic low, so we might very well see lower returns from stocks than we have in the past, but the 35% component of the fund in stocks should keep up with inflation as well or better than TIPS as long as GDP growth stays reasonably robust in the coming years. Last quarter's GDP growth of 1.3% (+ inflation) and the current dividend yield aren't great signs for future stock returns, but that's something that irrational exuberance might always "fix." Hey, it worked in the past!

Bottom line: stocks are volatile, but their long-term returns should be fairly predictable. You should choose your allocation to stocks based on your appetite for risk and how well you are being compensated for that risk.

Where my colleage and I both agree is that Wellesley has no magic components. Ultimately, this is an asset allocation decision. I see no compelling reason to go with Wellesley's all-nominal bond approach to the bond portion of that allocation.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 12:40 PM   #64
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Re: Better inflation hedge: TIPs or Wellesley?

Enough with your pointy-headed intellectuality!

Ha
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 01:30 PM   #65
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Re: Better inflation hedge: TIPs or Wellesley?

Quote:
Originally Posted by wab
Ladies and Gentlemen of the jury:
I regret to inform you that a jury of your peers could not be located and the both of you have been arguing your case to an empty courtroom for some time. We tried to get Judge Judy to hear the case but she recused herself, citing extreme apathy as the basis for her action.

Carry on...

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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 01:49 PM   #66
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by REWahoo!
Carry on...
I regret to inform you that I have taken wab. This really was his final argument. His number is up. His sin, you ask? Spelling "lose" as "loose." Twice! In the same paragraph!

Let this be a lesson....
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 03:04 PM   #67
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Re: Better inflation hedge: TIPs or Wellesley?

Both you geeks need to start firing up excel spreadsheets; We need hard facts on what ever you are talking about. :-) before making anymore comments. Though posting after the God guy I am afaird he might send a bolt of lighting my way.

-h
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-30-2007, 08:17 PM   #68
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by Rich_in_Tampa


Clinton did it.

We may not get everything right on this board, but I think we have successfully established at least this one truth.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-01-2007, 09:44 AM   #69
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Re: Better inflation hedge: TIPs or Wellesley?

I think Clinton holds quite a bit of wellesley!

Sorry Wab, but you're presuming that Wellesley would hold the same bonds forever, never buying new ones or exchanging older ones.

Unfortunately, thats not what happens.

We've already exhaustively determined that there is no premium in TIPS vs similar non indexed treasuries...if there were, nobody would own the "loser". Theres just a period where one may exceed the other until market pressures equalize the differential.

In the meanwhile, the chunk of equities gives you an actual return while the bond chunk settles down the volatility to a satisfactory level.

And there ya go with that "rates go up 1%, bonds lose 5.x% of their value" routine. Huh. Rates just went up 4%. Wellesley's nav went up. How the heck did that happen?

The bottom line is unless you have a LOT of money or dont spend much, a 2% tips allocation just keeps you from losing too badly and is only appealing in times of very high inflation.

And you have to put more than a dollop of money into them to have the 'hedge' be reasonably effective.

So over the long term, you can take substandard returns and then just not lose too much if and when we hit a long term high inflationary period, or you can take your 8-11% returns with low volatility and low loss risk at a low management cost and enjoy your life...and a lot more money.

Sounds like a sucky approach.

Or you can keep telling me that you know how things are going to unfold, when nobody does, or that things are going to behave in a certain way, when they dont always.

Or you can tell me where else you're gonna put your money. TIPS returns in less than high inflationary periods suck. Equities are fully priced. Junk stinks. Real estate is overpriced. Hmm, cash is paying pretty well, but you already tried to zap me on having a large cash position, so I guess you cant go that way.

Just so i'm clear on this, is it still an inflation hedge if you dont make money most of the time or lose 20-30% of the principal value?
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-01-2007, 11:56 AM   #70
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Re: Better inflation hedge: TIPs or Wellesley?

[Wab is in limbo right now while I thumb-wrestle various parties for control over his soul. In the meantime, he is forcing me to channel this message....]

Quote:
Originally Posted by Cute Fuzzy Bunny
Sorry Wab, but you're presuming that Wellesley would hold the same bonds forever, never buying new ones or exchanging older ones.

Unfortunately, thats not what happens.

We've already exhaustively determined that there is no premium in TIPS vs similar non indexed treasuries...if there were, nobody would own the "loser". Theres just a period where one may exceed the other until market pressures equalize the differential.
Fuzzy, you ignorant slut.

Yes, the price and yield of nominals would obviously equalize to match TIPS. How would they do that? If inflation went up, the yield of nominals would go up by way of their price going down. The only way to "exchange" the bonds held by the fund would be to sell them at a capital loss.

Quote:
And there ya go with that "rates go up 1%, bonds lose 5.x% of their value" routine. Huh. Rates just went up 4%. Wellesley's nav went up. How the heck did that happen?
You're confusing rates with rates.

The physics of bonds is not a function of pick-your-favorite-rate, like the fed funds rate which went up in the last few years. It is a function of the *market* rates for the specific bonds in question. For example, when the fed funds rate goes up, that affects *short-term* rates, and if you were paying attention recently, short-term bond values fell in proportion to their duration when their market rates went up.

Puuuuhlease get your facts straight before wab makes me get off my cloud again.....
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-01-2007, 03:47 PM   #71
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Re: Better inflation hedge: TIPs or Wellesley?

God, you second rate deity.

But then again, apparently even God has to use the worst case scenario to attempt to prove his weak, lame point as his actual argument appears to have already been defeated by almost 40 years of solid proof otherwise.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 04:33 AM   #72
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Re: Better inflation hedge: TIPs or Wellesley?

Wow God has joined the thread, what is next *****?
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 07:38 AM   #73
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by clifp
Wow God has joined the thread, what is next *****?
Well, I was talking to SATAN the other day, and she said....
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 11:45 AM   #74
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Re: Better inflation hedge: TIPs or Wellesley?

Quote:
Originally Posted by God
... Spelling "lose" as "loose."
Thank God . . . to too is forgivable, but loose lose is not.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 11:51 AM   #75
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Re: Better inflation hedge: TIPs or Wellesley?

Quote:
Originally Posted by riskaverse
Thank God . . . to too is forgivable, but loose lose is not.
So, what's the morale moral of this story?

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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 01:57 PM   #76
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Re: Better inflation hedge: TIPs or Wellesley?

Quote:
Originally Posted by REWahoo!
So, what's the morale moral of this story?
That God isnt any smarter than Wab. Which is rather unintuitive.

Also, that dyslexic atheists believe that there is no doG.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 02:10 PM   #77
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Re: Better inflation hedge: TIPs or Wellesley?

Are you guys still squabbling about this nonsense?!
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 03:14 PM   #78
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Re: Better inflation hedge: TIPs or Wellesley?

Quote:
Originally Posted by Cute Fuzzy Bunny
God, you second rate deity.
Quote:
Originally Posted by REWahoo!
So, what's the morale moral of this story?
Quote:
Originally Posted by Cute Fuzzy Bunny
That God isnt any smarter than Wab. Which is rather unintuitive.
And that neither God nor Wab can figure out how to hide their IP address...
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 04:18 PM   #79
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by brewer12345
Are you guys still squabbling about this nonsense?!
I thought of it more as a tiff.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 05-02-2007, 06:58 PM   #80
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Re: Better inflation hedge: TIPs or Wellesley?

This is really funny, keep going.
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