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Old 11-26-2013, 06:10 PM   #41
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It's interesting reading this discussion in light of the questions I posted regarding setting up my asset allocation.

If I can swing it, I'll definitely be laying the foundation for a liability matching portfolio in TIPS, I-Bonds, and so forth.
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Old 11-26-2013, 07:20 PM   #42
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I found the interview with Malkiel very thought provoking. As I am 56 with basically a 70/30 split very overweighed in small caps, I know I have to do something. His inclusion of REITS in the portfolio he recommended led me to research my FIDO options. I am thinking of moving my entire position in FCPGX (4% of my portfolio) to either FRSVX or FRIFX or both. I have never invested in REITs or real estate stocks. The first of the two seems to be purely REITs with low income while the latter has a very high income component.

These funds are in an IRA. I am looking to reduce equity position without increasing my bond position too much right now; do these two funds make sense? Any preference for one or the other (not retiring for a few years yet)?

thanks,

Marc
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Old 11-26-2013, 07:30 PM   #43
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I found the interview with Malkiel very thought provoking. As I am 56 with basically a 70/30 split very overweighed in small caps, I know I have to do something.
Have you also followed the Bernstein interview / ebook -

The worst retirement investing mistake - Sep. 4, 2012
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Old 11-26-2013, 08:01 PM   #44
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Have you also followed the Bernstein interview / ebook -

The worst retirement investing mistake - Sep. 4, 2012
Good link, thanks. Here is what I like:
Quote:
By owning stocks you do mitigate inflation risk, but of course, you're exposing yourself to equity risk to do it. It's sort of like all these people who are now buying dividend-yielding stocks because Treasury bonds don't have any yield; they're exchanging a riskless asset for a risky asset.

But there's another asset class that people really don't think about when they think about inflation protection, which is short, high-quality bonds with a maturity of less than three years. If we ever do get an inflationary shock, investors will demand a high real short-term rate of return. It's what happened during the late '70s and early '80s.

Even though interest rates are terrible right now, if inflation recurs -- as I think it probably will -- short-term bonds are a fine place to be, as are individual Treasuries or certificates of deposit. Since they mature soon, you can replace them quickly with newer, higher-interest bonds.
Interest rates usually more than keep up with inflation. It's true that real yields right now are historically low, but as a student of financial history I have to believe that's not going to last forever.
And this:
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Getting close to hitting your number is usually going to happen during a bull market, so the psychology of doing this right is tricky. It's hard to cut back on risk and accept lower returns when your neighbors are getting rich.
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Old 11-26-2013, 08:17 PM   #45
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I'm just thankful to have SV accounts. Most of my fixed assets can sit there a while.
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Old 11-26-2013, 08:57 PM   #46
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How about the floating rate notes the treasury is releasing in Jan? They are pegged to the 13 wk treasury bill instead of LIBOR.

What kind of returns might these get?
http://www.treasurydirect.gov/instit...NTermSheet.pdf
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Old 11-26-2013, 09:49 PM   #47
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Good link, thanks. Here is what I like:And this:
As far as the neighbors getting rich, try this if you want a more conservative portfolio but are worried about keeping up with the Joneses, try this -

Global Rich List

It is shows where you stand in terms of wealth or income compared to the rest of the world. (Just for grins try typing in just your SS benefits alone and see where you end up.)

On the OECD Better Life income index, two higher end U.S. Social Security incomes alone rank pretty favorably compared to most other household incomes in the OECD -

OECD Better Life Index
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Old 11-27-2013, 11:02 AM   #48
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That list is totally awesome! It makes you realize how good we have it as we head in to Thanksgiving. Much to give thanks for!
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Old 11-27-2013, 12:04 PM   #49
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Anything you can do will be wrong. It is time to panic. Again.

Time to buy Venezuelan bonds. From me.
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Old 11-27-2013, 01:14 PM   #50
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Regarding the Bernstein article, we plan to be retired for 39 more years. I feel very comfortable holding good quality intermediate term bonds (3-7 year duration).

When their NAV drops due to rising rates we will simply buy more bonds at a higher yield.
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Old 11-27-2013, 02:31 PM   #51
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For FI we use 2 offshore intermediate bond funds and USA FDIC insured CDs.
These offshore funds are PFICs?

Ha
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Old 11-27-2013, 03:31 PM   #52
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The two offshore funds we use are PIMCO Ireland's version of PIMCO USA's PTTAX.lw and PAIIX.lw.

They are NOT PFICs as no USA citizens/residents allowed.
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AA = 60/35/5. Expected CAGR = 5.7%. GSD (5y) = 7.8%. USD inflation (10 y) = 1.8%. AWR = 3.0%. TER = 0.5%. Net Port Yield = 1.7%. Term = 36 yr. FI Duration = 4.9 yr. Portfolio survival probability = 86%.
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Old 11-27-2013, 03:41 PM   #53
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The two offshore funds we use are PIMCO Ireland's version of PIMCO USA's PTTAX.lw and PAIIX.lw.

They are NOT PFICs as no USA citizens/residents allowed.
Thanks. I did not realize you are not a US citizen.

Ha
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Old 11-27-2013, 05:13 PM   #54
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REITs are a form of equities, albeit with less correlation than with most other equity asset classes, so it looks like he is advocating a very high percentage of equities for someone in their 50s.

I don't really understand his fetish for tax-exempt bonds in particular, though. Not that these are bad, but they have the same interest rate risk and inflation risk as corporates and Treasuries, do they not? Emerging market bonds, at least, have some additional "play" on foreign interest rates, currency rates and potential for appreciation through improving credit risk. (That said, these are also additional risks!)
Well my portfolio certainly resembles the one Malkiel advocates. Although I count dividend stocks as equities, and a fair amount of my REITs exposure is with individual properties. I am looking at emerging market bonds, anybody have a recommendation for a fund/ETF?.

I think the reason for favoring tax exempt vs US bonds is that on relative ratio the yield is much higher than historical averages
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Old 11-27-2013, 05:34 PM   #55
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I have been looking at EMB and PCY. These are the two largest EM sovereign bond ETFs, but at $3.64B and $1.88B respectively are not that large compared to stock ETFs. The trading volume is high enough to guarantee some liquidity.

The current yield is close to 5%, and both have been down more than 10% YTD. Is it a good time to buy? Beats me, but I just took a small nibble in PCY. EMB is rated ** by Morningstar, while PCY is ****.

EMB is currently traded at a small discount, while PCY is at a small premium. In 2008 when these funds just came out, there were a huge price/Nav discrepancies. I guess they were too new then, and so the market efficiency did not catch up with them. ER's are a bit high at 0.6% and 0.5% for EMB and PCY.

PS. I can trade PCY commission-free at Schwab for a before-tax account.
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Old 11-27-2013, 07:50 PM   #56
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I have been looking at EMB and PCY. These are the two largest EM sovereign bond ETFs, but at $3.64B and $1.88B respectively are not that large compared to stock ETFs. The trading volume is high enough to guarantee some liquidity.

The current yield is close to 5%, and both have been down more than 10% YTD. Is it a good time to buy? Beats me, but I just took a small nibble in PCY. EMB is rated ** by Morningstar, while PCY is ****.

EMB is currently traded at a small discount, while PCY is at a small premium. In 2008 when these funds just came out, there were a huge price/Nav discrepancies. I guess they were too new then, and so the market efficiency did not catch up with them. ER's are a bit high at 0.6% and 0.5% for EMB and PCY.

PS. I can trade PCY commission-free at Schwab for a before-tax account.
Are these two actively managed or index matching?

Ha
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Old 11-27-2013, 08:27 PM   #57
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Here's the inflation since 2000. Except for 2009, there was no deflation. Looking forward, it is difficult to see how it can recur.

YearInflation
20003.4
20012.8
20021.6
20032.3
20042.7
20053.4
20063.2
20072.8
20083.8
2009-0.4
20101.6
20113.2
20122.1
20131.5 YTD
I cant predict the future and do not claim I can, BUT fuel is trending down and is expected to be a couple of percent lower in 2014 compared to 2013. In turn, grain is declining as well and that may translate into lower food inflation in 2014. Increasing mortgage rates may stop increasing housing values. Health care costs are flat as well. That 1.5% inflation in 2013 might be an indication of some very low inflation in 2014.

So I think you good with bonds through 2014.
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Old 11-27-2013, 11:35 PM   #58
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REITs were killed this year. I think they are even more interest-rate-scare sensitive than bonds!
That's what I thought.
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REITs: 12.5 percent
in a rising rate environment REITs will fare poorly from what I understand.
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Old 11-27-2013, 11:53 PM   #59
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Are these two actively managed or index matching?

Ha
EMB follows the J.P.Morgan EMBISM Global Core Index, while PCY is based on the DB Emerging Market USD Liquid Balanced Index.

See PCY - Emerging Markets Sovereign Debt Portfolio and EMB - iShares J.P. Morgan USD Emerging Markets Bond ETF.

Has anyone heard of these indices before? It always seems to me an index fund is simply an active fund that has delegated its stock/bond picking to a committee who decides what goes into the index.

Anyway, both of these funds have a duration of 7 years, and they track each other within a few percent in the last 4 years.

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I cant predict the future and do not claim I can, BUT fuel is trending down and is expected to be a couple of percent lower in 2014 compared to 2013. In turn, grain is declining as well and that may translate into lower food inflation in 2014. Increasing mortgage rates may stop increasing housing values. Health care costs are flat as well. That 1.5% inflation in 2013 might be an indication of some very low inflation in 2014.

So I think you good with bonds through 2014.
Oil and commodity prices have been fairly tamed, though I don't think they will decline to the point of causing overall deflation. Anyway, I have been tempted to get back into bonds with some of my cash, and will DCA into shorter duration bonds. I would not touch funds with 15-year duration.
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Old 11-28-2013, 06:46 AM   #60
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That's what I thought. in a rising rate environment REITs will fare poorly from what I understand.
To see how they behaved this year, you have to look at their performance since May.

My bond funds overall are down about 1% since late May including reinvested dividends.

My REIT funds, which had a huge run up into May, are down 9% since I rebalanced on 5/20. That's quite a clobber!

The REITs had been up 17.5% up YTD on May 20 (which is why they got rebalanced). It's one of my most volatile asset classes.
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