Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 01-05-2016, 03:20 PM   #21
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
Thank you Lsbcal, keep in mind that I'm only using long term bonds in a third of my bonds portfolio, or 18% of my total portfolio. It doesn't really dominate the investments.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________

__________________
OrcasIslandBound is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 01-05-2016, 04:22 PM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
long term treasury's can be very volatile right on par with stocks .

my opinion is odds are pretty good rates will trend up on bonds , they have already over the year wiping away all interest and barely staying positive on intermediate term bonds while long term bonds were down.

with equity's being the likely lead horse as it usually is i would not want any other assets with the weight of my stocks that could hold back my equity's if equity gains are weak..

i would not hold any long term bonds at this point , only intermediate and short .
__________________

__________________
mathjak107 is offline   Reply With Quote
Old 01-07-2016, 04:55 AM   #23
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
Many here have missed the whole point. Long term bonds (BLV) are usually negatively correlated with stocks. Negative correlation means when one goes up the other goes down. That is what I'm talking about when I say the overall "system" is less volatile then the individual components.

The beauty of being in charge of one's own finances is that we can all have the investments our own way. I will enjoy a lesser volatility because I'm using both long term bonds and stock indexes in my portfolio, and those who are largely invested in stocks will get a better return if they wait long enough, just a greater short term loss as well during sharp downturns.


Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 01-07-2016, 05:40 AM   #24
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
negative correlated assets count on strong trends in one of them to eeek out gains .

no problem using long term bonds to fly fighter cover when we have stable interest rates and a raging stock market or falling interest rates when we have poor markets .

but when rates are more likely to rise and have been and the stock market returns weak there is no powerful trend and that is the danger now .

every time stocks get traction in a nice up day usually long term bonds take an equally large hit .


that has been the problem with the permanent portfolio .

it just has not been able to get traction since every time an asset has a run up an opposing asset is strong enough to grab it by the collar and yank it back .

low rates and high valuations are not the best time in my opinion to play assets against each other . they more need to support each other and help the asset that makes it in to the clear able to run with the ball .

not every point in time has a strategy that is best .
__________________
mathjak107 is offline   Reply With Quote
Old 01-07-2016, 09:51 AM   #25
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,693
Quote:
Originally Posted by OrcasIslandBound View Post
Many here have missed the whole point. Long term bonds (BLV) are usually negatively correlated with stocks. Negative correlation means when one goes up the other goes down. That is what I'm talking about when I say the overall "system" is less volatile then the individual components.
...
I'm not convinced the long bonds together with equities are a smoother ride then intermediate bonds with equities. I'd like to see the data.

There is some indirect evidence. When I look at Vanguard's Wellesley it has 20% of 20-30 year bonds in the bond part of the portfolio. But they do have a larger portion of intermediates. I guess this is termed a bar bell strategy? See: http://portfolios.morningstar.com/fund/summary?t=VWELX®ion=USA&culture=en-US
__________________
Lsbcal is online now   Reply With Quote
Old 01-07-2016, 11:57 AM   #26
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
Very interesting that Wellesley 20% of its bonds in longer term bonds. I have about 33% of my bonds in longer term, so a little more than Wellesley but comparable. The longer term bonds are 18% of my total investments.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 01-07-2016, 12:29 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
audreyh1's Avatar
 
Join Date: Jan 2006
Location: Rio Grande Valley
Posts: 16,505
Quote:
Originally Posted by Lsbcal View Post
I'm not convinced the long bonds together with equities are a smoother ride then intermediate bonds with equities. I'd like to see the data.

There is some indirect evidence. When I look at Vanguard's Wellesley it has 20% of 20-30 year bonds in the bond part of the portfolio. But they do have a larger portion of intermediates. I guess this is termed a bar bell strategy? See: http://portfolios.morningstar.com/fund/summary?t=VWELX®ion=USA&culture=en-US
I remember the Frank Armstrong efficient frontier (and other) curves that showed short-term and intermediate actually behaved better than long bonds for risk-adjusted returns. He concluded that the long bond rates didn't compensate sufficiently for volatility/slow response to inflation rises.

I have an AMT-free muni bond fund has an average duration of around 7 years. Other than that I hold only intermediate and short-term bonds.
__________________
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
audreyh1 is online now   Reply With Quote
Old 01-07-2016, 03:02 PM   #28
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,693
Quote:
Originally Posted by audreyh1 View Post
I remember the Frank Armstrong efficient frontier (and other) curves that showed short-term and intermediate actually behaved better than long bonds for risk-adjusted returns. He concluded that the long bond rates didn't compensate sufficiently for volatility/slow response to inflation rises.

I have an AMT-free muni bond fund has an average duration of around 7 years. Other than that I hold only intermediate and short-term bonds.
Yes that is my understanding too and why I've avoided long term bonds.

I don't know what Wellesley's strategy is with a 20% holding of long bonds in their bond portfolio and I'm not sure if it is a static strategy or dynamic. Would be interesting to know just for educational purposes.
__________________
Lsbcal is online now   Reply With Quote
Old 01-07-2016, 06:20 PM   #29
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Quote:
Originally Posted by OrcasIslandBound View Post
Many here have missed the whole point. Long term bonds (BLV) are usually negatively correlated with stocks. Negative correlation means when one goes up the other goes down. That is what I'm talking about when I say the overall "system" is less volatile then the individual components.
Yes, I remember this.

I have recently been looking at the data for a 50/50 combination of SCV/LTB as far back as the early '70s. They are inversely correlated and produced an impressive and surprisingly not very volatile growth over time. Only problem is frequent rebalancing (twice a year or so, when they get far out of balance).

This may require more attention than I want to commit to and I am not completely comfortable with it, but it can't be worse than my O&G stock adventure lately. Can it?


Sent from my SM-G900V using Early Retirement Forum mobile app
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 01-07-2016, 09:31 PM   #30
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
What's O&G? The only thing I can think of is Oh God stock. Forgive me.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 01-07-2016, 10:17 PM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by OrcasIslandBound View Post
What's O&G? The only thing I can think of is Oh God stock. Forgive me.

Sent from my Nexus 4 using Early Retirement Forum mobile app
"Oil and Gas'--which has probably been a wild ride of late. IIRC, it's the industry that Ed is/was in, so if >he< is finding it to be an adventure, there's no way that I would wade into it.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 01-07-2016, 10:48 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Quote:
Originally Posted by OrcasIslandBound View Post
What's O&G? The only thing I can think of is Oh God stock. Forgive me.

Sent from my Nexus 4 using Early Retirement Forum mobile app
You ain't far off the mark.

Wild ride means straight down.

I bet more than I should have (but only a part of the pot) on Oil and Gas including pipelines, which should have been immune to the collapse in oil prices--but weren't. I reviewed the companies I held/hold and most of them still look good to me but I sold those I had converted to Roths for recharacterisation. Too clever by half, as the Brits say.

I am back to funds and ETFs (and I have some trepidations about ETFs). No more individual stocks. Not even XOM.

Back to our original program: 50/50 SCV/LTB. Any comments?

I used Simba's updated program (Boggleheads and referenced on this forum) as referred to me to eye-ball this mix. I went back as far as I could to the '70s, when interest rates last went up (make that UP!) dramatically. Performance of the equivalent of LTB funds that far back is uncertain to me but as far as I can tell, Simba's data is consistent with recent data.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 01-07-2016, 11:05 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2004
Posts: 11,615
Quote:
Originally Posted by Ed_The_Gypsy View Post
Back to our original program: 50/50 SCV/LTB. Any comments?
Sounds similar to Larry Swedrow's recent idea ("Reducing the Risk of Black Swans"), he wrote a book on it. We batted it around in this thread and some more here. I am not a fan of it--it just relies too much on the future being like the past, and it can lead to some very heavy portfolio concentration in a few sectors. I'd much prefer to spread my bets. But take a look at his book and see what you think.
__________________
"Freedom begins when you tell Mrs. Grundy to go fly a kite." - R. Heinlein
samclem is online now   Reply With Quote
Old 01-07-2016, 11:37 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Quote:
Originally Posted by Lsbcal View Post
I'd focus on a portfolio I could hold with some confidence in wild markets.
Hmmm? Your suggestions would be most welcome.

BTW, I am not talking about the whole pot. For example, I have a chunk in VWELX, a broad 60/40. I also have a chunk in international (WDIV and an O&G stock--don't wince, this one,EDPFY, has done well for me).

My interest was piqued by Paul Merriman here: When it pays to go all-in on small-cap value - MarketWatch combined with the significant non-correlation (or inverse correlation) with LTB, which also have a long-term return. I insist that non-correlated assets have a positive return. Refer back to Simba's spreadsheet.
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 01-07-2016, 11:42 PM   #35
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,693
What about that long rise in rates from 1954 to 1982?
__________________
Lsbcal is online now   Reply With Quote
Old 01-08-2016, 03:05 AM   #36
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
While the market was down about 2.5% today, my investments were down about 1%. I have mostly index ETFs including VYM, BND, BLV and a few mutual funds including jabax, FLPSX, mwtrx, fsevx, fsivx, a couple of reits including o and hcn, and finally $11k of VDE that I bought about a month ago that is now worth $10k. This last was an energy index, mostly oil including xom as it's top holding. 45% stocks 55% bonds. It is a very dividend focus group of investments as my goal is to not sell the pieces during retirement. Over 3% yield overall. I can provide the % in each if desired.

Sent from my Nexus 4 using Early Retirement Forum mobile app
__________________
OrcasIslandBound is offline   Reply With Quote
Old 01-08-2016, 03:22 AM   #37
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jul 2005
Posts: 5,414
Quote:
Originally Posted by Lsbcal View Post
What about that long rise in rates from 1954 to 1982?
they were accompanied with lower stock valuations . very different from low rates high stock valuations . equity's rose 11% cagr over that time frame .

think we are looking at 11% average returns at this stage ? not likely for many many many years .
__________________
mathjak107 is offline   Reply With Quote
Old 01-08-2016, 09:08 PM   #38
Recycles dryer sheets
OrcasIslandBound's Avatar
 
Join Date: Mar 2010
Location: Poway, CA
Posts: 441
Unfortunately, the trend is continuing.

Sent from my Nexus 4 using Early Retirement Forum mobile app
Attached Images
File Type: jpg 1452308885939.jpg (69.7 KB, 11 views)
__________________
OrcasIslandBound is offline   Reply With Quote
Old 01-10-2016, 12:22 PM   #39
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Ed_The_Gypsy's Avatar
 
Join Date: Dec 2004
Location: the City of Subdued Excitement
Posts: 5,293
Quote:
Originally Posted by Lsbcal View Post
What about that long rise in rates from 1954 to 1982?
Great question! I am not confident I can answer that, but let me share what I have. First, I am indebted to big-papa for directing me to Simba's spreadsheet (updated) from Bogleheads. The spreadsheet must have been an enormous amount of work by Simba, updated by several others. A thousand thanks to all!

https://drive.google.com/file/d/0B6r...bWc/view?pli=1

The first image is from FRED (thank you for the reference!) showing long-term (>20 years?) since 1954. Note the gap when LTB were not issued. Interest rates peaked in 1982.

The second image is from Simba's spreadsheet for 100% LTB from 1972 to 2014. I believe this would be for a LTB fund, but I cannot confirm that. I believe this is for no withdrawals, just compounding. The blue dots are for the Coffeehouse Portfolio, for reference. (LTB<<CHP.)

The third image is also from Simba's spreadsheet showing 100% SCV. Again, the blue dots are for the Coffeehouse Portfolio. (SCV>>CHP.)

The fourth image is for a 50/50 SCV/LTB (fund?) portfolio vs CHP. The red dots are for the portfolio rebalanced; the yellow ones are for not-rebalanced (why would that be interesting? Dunno. Can't shut it off, though.) Note that the rebalanced 50/50 SCV/LTB outperforms the CHP and takes a shallower dip in 2008.

Finally, the fifth image shows 50/50 (P1, navy-blue diamond), 100% LTB (P2, purple square) and 100% SCV (P3, yellow triangle) returns vs risk, measured as annual standard deviation. (Ignore the light blue diamond and the grey circle.)

Over the 43 year period,
50/50 had a 12%+ annualized total return with 11.8% SD and outperformed the CHP,
100% LTB had a 8.9%+ annualized total return with 12.1% SD and did NOT outperform the CHP (no surprise),
and 100% SCV had a 15.3% annualized total return with 20.4% SD and outperformed the CHP.

Back to your question, it looks like the equivalent of a LTB fund weathered 1972-1984 just fine. (Not sure how they got this performance as there does not seem to have been a LTB fund that goes that far back, although I checked performance against one fund as far back as I could and they match. I have not seen any comparable data from 1954-1972.)

What are your thoughts? Anyone? Someone please poke holes in this study. It looks too good to be true: only two funds, rebalanced, outperform the CHP with less volatility.
Attached Images
File Type: png FRED LTB.png (160.0 KB, 14 views)
File Type: jpg Simba LTB 1972-2014.jpg (80.3 KB, 13 views)
File Type: jpg Simba SCV 1972-2014.jpg (78.1 KB, 9 views)
File Type: jpg Simba 50 SCV 50 LTB 1972-2014.jpg (79.9 KB, 9 views)
File Type: jpg Portfolio returns vs risk.jpg (52.5 KB, 10 views)
__________________
my bumpersticker:
"I am not in a hurry.
I am retired.
And I don't care how big your truck is."
Ed_The_Gypsy is offline   Reply With Quote
Old 01-10-2016, 03:35 PM   #40
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Lsbcal's Avatar
 
Join Date: May 2006
Location: west coast, hi there!
Posts: 5,693
You could look up "Larry Portfolio" which is something like 30/70 (small cap US + small cap international + 5 year Treasuries). It is a somewhat similar type of idea but probably a little more diversified.

For me such portfolios are too much tracking error. Should it under perform for 10 years that is a real issue for me. Even if it had under performance for a few years it would be not to my taste. One should ask themselves how long they might hold a portfolio that under performs or goes down when the market is going up.

Someone who does not need a lot of performance from the equity side of the portfolio such as a high net worth person or one with a good pension might consider the Larry Portfolio.
__________________

__________________
Lsbcal is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Work dilema regarding Megacorp request to plan long term when I only have short term Al in Ohio FIRE and Money 32 07-05-2013 04:10 PM
Long term loss combined with long term gain dmpi FIRE and Money 9 12-21-2012 04:27 PM
USAToday "Why are bonds outperforming stocks over long term?" web_diva Stock Picking and Market Strategy 29 03-25-2012 12:58 PM
US Pulls plug on Long Term Care portion of health care reformct ("CLASS Act") samclem Other topics 14 10-15-2011 11:27 AM
Short term vs Long term Bonds bank5 Stock Picking and Market Strategy 17 03-24-2009 04:40 PM

 

 
All times are GMT -6. The time now is 05:05 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.