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Re: brewer
Old 02-07-2005, 10:14 AM   #21
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Re: brewer

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I know as a mater of course that I personally could not buy long term bonds at these levels; but I don't rally have a rational justification for that. Other than stuff happens, and at long term rates below 5%, most of what happens is likely to be bad for the bondholder.

Mikey
Mikey: Easy to say good post, if it's a point of view that I totally agree with
Of course, in the way of a disclaimer, I'm one of the old pharts on this board.
The current dislocation re: rates, inflation, etc. is the exact opposite of what we had 1966-1982, but I am a damn sight older.
In my opinion, for what it's worth, (not much, I'm sure, especially with the younger posters.) is to have patience, and allow the market place to adjust rates.
Very easy in this environment to stretch for an extra point or so, and end of having your head handed to you.
Losing principal is no big problem when you are working, but a real up-hill battle in full retirement.
I plan on staying short on my fixed income part of my funds, and hopefully keep principal intact, until the situation plays itself out.
"Stuff happens" (using your quote).
Jarhead
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Re: brewer
Old 02-07-2005, 10:17 AM   #22
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Re: brewer

"
Quote:

I know as a mater of course that I personally could not buy long term bonds at these levels; but I don't rally have a rational justification for that. Other than stuff happens, and at long term rates below 5%, most of what happens is likely to be bad for the bondholder.

Mikey
Mikey: Easy to say good post, if it's a point of view that I totally agree with
Of course, in the way of a disclaimer, I'm one of the old pharts on this board.
The current dislocation re: rates, inflation, etc. is the exact opposite of what we had 1966-1982, but I am a damn sight older.
In my opinion, for what it's worth, (not much, I'm sure, especially with the younger posters.) is to have patience, and allow the market place to adjust rates.
Very easy in this environment to stretch for an extra point or so, and end of having your head handed to you.
Losing principal is no big problem when you are working, but a real up-hill battle in full retirement.
I plan on staying short on my fixed income part of my funds, and hopefully keep principal intact, until the situation plays itself out.
"Stuff happens" (using your quote).
Jarhead
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Re: brewer
Old 02-07-2005, 10:19 AM   #23
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Re: brewer

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If you see me advocating mostly index portfolios for others, it is because I am fully aware that my choices are often not for the faint of heart and are made based on many years of specialized training and experience which others may not have.
Well, it is true that superior investors can get away with things that ordinary mortals can't. To help me more confidently assign you to the superior class, will you tell me what your net invested assets amount to?

Mikey
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Re: brewer
Old 02-07-2005, 10:25 AM   #24
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Re: brewer

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Well, it is true that superior investors can get away with things that ordinary mortals can't. To help me more confidently assign you to the superior class, will you tell me what your net invested assets amount to?

Mikey
It makes not a whole lot of difference. After all, if I started with millions and ended up with a million bucks, you wouldn't consider me "superior" would you? Yet if I told you I was sitting on $1MM with no context, you might be tempted to conclude that I was doing OK.
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Re: long-term bond YTD return
Old 02-07-2005, 01:01 PM   #25
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Re: long-term bond YTD return

Quote:
The current dislocation re: rates, inflation, etc. is the exact opposite of what we had 1966-1982, but I am a damn sight older. In my opinion, for what it's worth, (not much, I'm sure, especially with the younger posters.) is to have patience, and allow the market place to adjust rates.
This strikes me as solid advice from a wise man. As one who was not a bond investor in the '66-'82 period, I can only imagine what it must been like. What follows are real bond returns during that period, and a few others.

PERIOD
BOND REAL RETURNS
1946-1965
-1.2%
1966-1981
-4.2%
1982-2001
+8.5%
1926-2001
+2.2%
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Re: long-term bond YTD return
Old 02-07-2005, 02:51 PM   #26
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Re: long-term bond YTD return

So what did the S&P500 do from 1946-1965 and 1966-1981 (yahoo's historical quotes don't go back that far)? How would someone who was 50/50 stocks/bonds have fared? Is this data telling us that all bonds should've been avoided, or that long-term bonds took a bath?

By real returns, you mean these numbers are after inflation (not to be confused with total return)?

Closer to home, what would've happened to a fund like VFIIX (vanguard GNMA, high-quality, duation of 2.9 years)? I believe that mortgage backed securities didn't exist back then...or VFICX (VG intermediate term investment grade bonds)?

Quote:
PERIOD
BOND REAL RETURNS
1946-1965
-1.2%
1966-1981
-4.2%
1982-2001
+8.5%
1926-2001
+2.2%
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Re: long-term bond YTD return
Old 02-07-2005, 04:03 PM   #27
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Re: long-term bond YTD return

[quote]
This strikes me as solid advice from a wise man. As one who was not a bond investor in the '66-'82 period, I can only imagine what it must been like. What follows are real bond returns during that period, and a few others

Bob: There was certainly a lot of carnage during that period, and the charts, while I'm sure are accurate, seem kind of benign.
One of the guys i worked with bought a long bond in the late 60's. He was an older guy, and was due to take regular retirement in 1981. I remember when he bought it and also remember trying to talk him out of it. He was getting about 1and a half points over CD's, and like most of us in those days had very limited knowledge about the mkts. in general. In about 4 years, he was getting well below mkt. rates on interest, and has bond was worth about 70% of orig. value. When he retired in 1981, it was worth less than half its original value.
The poor guy had received far below mkt. interest rates for 11 years, and ended up with bond at 50% if original value.
Unfortunantly, there were many people that got hung out to dry during that period. Was a tough period, and was compounded by the fact that investors in general had nowhere near the understanding that todays investors have.
Personally, Bob, as I mentioned in my prev. post, (partly due to my living through that period of time, and my age), I am trying to be patient enough not to lose principal on the debt part of my stuff.
Like you, I have some TIPs, CDs, short-term corp. and a hedge fund as the lions share of my portfolio as of now.
Take care, Jarhead













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Re: long-term bond YTD return
Old 02-07-2005, 04:29 PM   #28
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Re: long-term bond YTD return

Quote:
By real returns, you mean these numbers are after inflation (not to be confused with total return)?
Yes, it's an after inflation return.

What I take from this:
--Bonds can do serious damage. I believe Jarhead mentioned awhile back that he experienced it personally back in the 60s.
--Returns have been stellar since 1982 as rates have come down.
--I see more potential for downside than upside at this level.

I don't know what the future holds, but since I believe there's much more downside than upside, I have chosen to sit on the sidelines with Penfed CDs at 5.25%, I-Bonds, and the Vanguard ST Corp fund. None of those are likely to do serious harm to me. I did buy a bunch of LT Tips at 2.5+% early last year, but that is forever money that I'll hold until maturity if things turn against me. I wouldn't do that with LT nominal bonds at this level. Just my gut reaction.

EDIT: Jarhead, I see you posted while I was writing. It must have been quite a time! I graduated from HS in 1970 - I was totally oblivious to the carnage.
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Re: long-term bond YTD return
Old 02-07-2005, 04:41 PM   #29
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Re: long-term bond YTD return

Got some Vanguard High Yield in her taxable portfolio as an income booster(low tax bracket).

Why you buy is as important as what you buy.

VWEHX, 5.98% yield, Duration 3.9.

Held ala John Galt style as a small income stream 'outside the box' - don't consider it as part of the portfolio or needing rebalancing.

Understand that it is a FUND(not a single bond) with a 3.9 thrills and chills duration. Not for everyone.
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Re: long-term bond YTD return
Old 02-07-2005, 04:52 PM   #30
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Re: long-term bond YTD return

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Got some Vanguard High Yield in her taxable portfolio as an income booster(low tax bracket).

Why you buy is as important as what you buy.

VWEHX, 5.98% yield, Duration 3.9.

Held ala John Galt style as a small income stream 'outside the box' - don't consider it as part of the portfolio or needing rebalancing.

Understand that it is a FUND(not a single bond) with a 3.9 thrills and chills duration. Not for everyone.
Uncle, with junk you don't need to worry too much about duration. After all, if rates whipsaw much, a lot of those bonds will default anyway. Most of the risk is credit risk.
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Re: long-term bond YTD return
Old 02-07-2005, 04:52 PM   #31
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Re: long-term bond YTD return

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Like you, I have some TIPs, CDs, short-term corp. and a hedge fund as the lions share of my portfolio as of now.
Hi Jarhead,

I agree with you that one who has no job or a pension should not play loose with his capital. Like loose lips, that sinks ships.

I am not even convinced that 20 year olds should take risks that they don't have infomed reason to believe are more than compensated by the probable returns.

BTW, I don't remember hearing you refer to the hedge fund in the past. Could you tell us a little about it? Structure, costs, what you think of it, etc.?

Regards, Mikey








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Re: long-term bond YTD return
Old 02-07-2005, 07:54 PM   #32
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Re: long-term bond YTD return

Quote:

BTW, I don't remember hearing you refer to the hedge fund in the past. Could you tell us a little about it? Structure, costs, what you think of it, etc.?

Hi Mikey, the hedge fund (ultra-conservative), that I use, and have owned since l989 is Gateway Index Plus.
I don't have a prospectus at this time, so I'll have to wing it on their methodology.
They use the S&P 500, and sell calls on the entire index every quarter. (I believe they use a 5% figure).
It has been an excellent fund for a smooth ride on the distribution side. Very little volatility. You give up a little over half on upside, but very little downside risk.
2004 S&p up 11%, Gateway up 7&
2003 S&P up 28%, Gateway up 12%
2002 S&P down 24%, Gateway down 5%
2001 S&P down 13%, Gateway down 3%
2000 S&P down 11% Gateway up 7%
1999 S&P up 19% Gateway up 13%
That's the only years I've got at my disposal. Although I remember that the only 2 years that the S&P had down years other than 04,03,02, since l989 was l990, and 1994, and Gateway was up 10%, and 6%.
Not very exciting for a younger investor, but what I really appreciate about the fund is that when you start distribution, you have no problem worrying about the timing on withdrawals.
I feel much more comfortable with this fund than I would with long term bonds. (Not saying that I'm right, not knowing how this current cycle is going to play out, but feel pretty confident that it is a good fund for me to be in at this time.
Take care, Mikey
Regards, Jarhead






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Re: long-term bond YTD return
Old 02-08-2005, 03:46 AM   #33
 
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Re: long-term bond YTD return

I invite Jarhead (or anyone) to take their best shot

I have a bond ladder with no bottom rungs. Maturities
mostly from 12 out to 26 years, rated from AAA to upper
level "junk". Average yield is 7% annual. Although I am satisfied with the total income this throws off, I am worried about a drop in the NAV as rates increase.
This is true even though as far as I can see I will need
the income ( pretty well fixed) and won't need to dip into the "base" before maturity or until the bonds
are called (most of it is callable).. Sooooooooo, I am
currently getting about 2% over what a 5 year CD
would yield. Is that enough? Don't know. The total
annual amount doesn't look like that much, even to me,
and so trading some of this stuff for 5 year CDs has appeal. But, if I wait too long and interest rates rise
more rapidly, I am stuck. brewer had an idea. Anyone else?

JG
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Re: long-term bond YTD return
Old 02-08-2005, 05:22 AM   #34
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Re: long-term bond YTD return

Jarhead's fund sounds interesting...but could you approximate it's performance with some mix of a S&P500 index fund and a ST bond fund? Or does the fund's strategy of selling calls and buying puts give it a unique advantage?
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Re: long-term bond YTD return
Old 02-08-2005, 06:48 AM   #35
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Re: long-term bond YTD return

Quote:
I invite Jarhead (or anyone) to take their best shot *

I have a bond ladder with no bottom rungs. *Maturities
mostly from 12 out to 26 years, rated from AAA to upper
level "junk". *Average yield is 7% annual. *Although I am satisfied with the total income this throws off, I am worried about a drop in the NAV as rates increase.
This is true even though as far as I can see I will need
the income ( pretty well fixed) and won't need to dip into the "base" before maturity or until the bonds
are called (most of it is callable).. *Sooooooooo, I am
currently getting about 2% over what a 5 year CD
would yield. *Is that enough? *Don't know. *The total
annual amount doesn't look like that much, even to me,
and so trading some of this stuff for 5 year CDs has appeal. *But, if I wait too long and interest rates rise
more rapidly, I am stuck. *brewer had an idea. *Anyone else?

JG
JG:
I wouldn't attempt to give you advice on the income part of your situation without knowing what else you have for growth, cash flow, etc.
You have mentioned in prev. posts that you are about 50% in Real Estate.
What type of real estate? Income producing? Office Bldgs., houses, apts, etc.? (Be specific).
Impossible to advise (properly), without a full understanding of a persons situation.
Regards, Jarhead

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Re: long-term bond YTD return
Old 02-08-2005, 07:01 AM   #36
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Re: long-term bond YTD return

Quote:
Jarhead's fund sounds interesting...but could you approximate it's performance with some mix of a S&P500 index fund and a ST bond fund? Or does the fund's strategy of selling calls and buying puts give it a unique advantage?
Soupcxan:
Just a further hedge.
We've had a bull mkt. in bonds for the last 20 years or so. You would be hard put to duplicate the returns in that period of time with a combination of 50% S&P, and 50% bonds.
That being said, the bond picture is a whole lot different going forward.
Gateway's methodology doesn't use bonds.
Just a further hedge.
Regards, Jarhead
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Re: long-term bond YTD return
Old 02-08-2005, 07:58 AM   #37
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Re: long-term bond YTD return

Hi JG,

Another option would be to buy inflation adjusted
CD's or IPI's. There are some on the secondary
market paying 2+% + CPI. I currently own a
CD paying 2% +CPI and a corporate paying 2.38%
+ CPI. These securities are similar to Vanguard's
TIPS fund in that you get to spend all the yield
if you need it. The downside is that at maturity
you receive par value ..... not an inflation adjusted
principal like I-Bonds or Gov TIPS. These are generally
mid term bonds. Mine mature in about 9 years

The price of these securities is sensitive to changes
in real rates but not inflation. Now that I am fully
invested watch real rates head north.

Cheers,

Charlie
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Re: long-term bond YTD return
Old 02-08-2005, 09:27 AM   #38
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Re: long-term bond YTD return

Chuck,
I searched but couldn't find anyone selling CDs at 2%+CPI. Do you know of any sources?
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Re: long-term bond YTD return
Old 02-08-2005, 09:41 AM   #39
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Re: long-term bond YTD return

Quote:
Jarhead's fund sounds interesting...but could you approximate it's performance with some mix of a S&P500 index fund and a ST bond fund? Or does the fund's strategy of selling calls and buying puts give it a unique advantage?
Selling a call and buying a put is a synthetic short position. So in that way it is different from the mix you mentioned.

Mikey
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Re: long-term bond YTD return
Old 02-08-2005, 09:44 AM   #40
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Re: long-term bond YTD return

Jarhead, thanks for the data. I want to look at that fund over the next few days.

Mikey
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