recommended bond portfolio

[saluki9]

Heh, so what do you think of SPIAs?

I have mixed feelings about SPIAs.

I think that for people who aren't interested in leaving money to their children or who have limited resources they can be a very helpful solution. Yet, the fact remains that they purchaser is trading the risk of running out of money for the credit risk of the insurance company.

Concerning the previous posts...


I think the problem here is that we have two very different types of investors debating the same solutions. Whereas Nords and Brewer might be happy accepting very high volatility for higher returns, most investors have other worries than their terminal value. If all you care about is your portfolio at time X, then correlations don't mean much to you, you should just invest in the securities with the highest expected reutns. Whether LQD has higher expected returns than the Lehman Ag, I will leave to your own estimate

 

[mathjak107]

corporate bonds are to correlated to stocks for my taste.

they have most of the risk and little of the gain potential. I prefer treasuries and foreign.

 

[mathjak107]

I would be careful about using duration as a measurement of time. It's best and most common use is as a measurement of sensitivity to changes in interest rates.

Holding a fund for the "length" of it's duration is no guarantee that you will not see a loss in the principal value.

This is true but it still acts as guide. Remember too that reinvesting the dividends shortens up that duration time alot too

 

[magellan_nh]

I think the problem here is that we have two very different types of investors debating the same solutions. Whereas Nords and Brewer might be happy accepting very high volatility for higher returns, most investors have other worries than their terminal value. If all you care about is your portfolio at time X, then correlations don't mean much to you, you should just invest in the securities with the highest expected reutns. Whether LQD has higher expected returns than the Lehman Ag, I will leave to your own estimate

I'm not sure if this was in response to my comments, but in case it was, I didn't mean to imply that I think correlations don't matter. I think they do and I'd like to optimize my portfolio around estimated future correlations rather than correlations from the last 5 years.

We could argue all day about what methods will best accomplish this, but I don't think it's silly or demonstrates a lack of common sense to think about the problem of how best to estimate future correlations between asset classes.

Finally, in the interest of full disclosure, you can see my complete asset allocation on the introductions board here:
http://early-retirement.org/forums/index.php?topic=9562.msg173931#msg173931

I don't think I'm talking about anything really radical here (well maybe the gold ). I'm saying that I've chosen NOT to tilt my strategic bond allocation away from a market allocation and toward treasuries only.

Jim

 

[AltaRed]

I don't think much of LQD as a bond allocation, in part because of the factors Saluki mentioned and in part because of the fact that credit spreads are at historically low levels.

That is where I landed as well.