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Old 04-26-2020, 10:16 AM   #81
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Oh, I think 45 years of mostly successful investing experience has provided a pretty good education.

The yield curve/recession story comes around every few years. It is always pretty much the same: "The yield curve is inverted, we're gonna have a recession," "Jeeez where is that recession?," and so on. There is always a lot of chatter about the correlation between the yield curve and a subsequent recession, but it always turns out that the uncertain timing means that the yield curve information is not actionable for investors. Actually there are many "leading economic indicators" that together still don't allow the economists to accurately predict recessions. For more on this, read Nate Silver's "the signal and the noise" or at least his chapter on economic forecasting.

Whenever the yield curve inverts there are always those who offer various naive methods for forecasting the "inevitable" recession and taking advantage of that knowledge. Sometimes someone gets lucky, like our @vchan here on his exit decision. (He still has to re-enter successfully to declare a win.) But think about this: there are a lot of smart people out there. (@vchan might even admit that there is probably a tiny sliver who are smarter than he is.) If yield curves did provide consistently reliable and investable information, those smart people would have had it arbitraged away by now. If you want to read something that is not naive, Google gave me this: https://www.bostonfed.org/publicatio...eld-curve.aspx from the Boston Fed. It discusses a number of indicators, including the yield curve. Regarding 2019, when @vchan went to cash: "After the stance of monetary policy is taken into account, the probability of a future recession as of the third quarter of 2019 is lower, often noticeably so, than the signal obtained by relying exclusively on the yield curve." Complicated stuff. (No I did not read the paper in detail.)

Another interesting aspect of @vchan's genius idea is the cause of the current recession*. He says he made his decision based on the financial indicators but the current recession has had nothing to do with financial indicators. It was caused by the pandemic and consequent shutdowns of economic activity. So does his view mean that the pandemic was simply a coincidence and that the recession would have happened exactly now, anyway? Certainly he does not think that the inverted yield curve predicted the pandemic?

This yield curve stuff seems to be all new to @vchan so I can see why he is quite excited about it. It is really pretty old news.

----------------------
*Technically I don't think we are officially in a recession. That is a lagging call, but I certainly think the call will be made at some point.

All of that rationale about luck, yield curve predicting the pandemic, etc really does NOT matter.

What matters is that I reallocated from 60/40 portfolio to 100% treasuries in 2019. I missed the crash and you probably did not. My portfolio went UP during this crash. I would guess your portfolio more likely went DOWN during this crash. What is wrong with making more money?

It was my original strategy to avoid the next bear market because I was getting close to 70. Avoiding only one bear market will also make a HUGE difference in your portfolio. Most people changed their AA to address this age risk. In my case, I simply changed my AA by buying 100% treasuries which are considered less risky than equities. Many investors do decide when they have made enough money in the stock market, they decided to go to 100% cash or 100% treasuries. What is wrong with reallocating into a less risky portfolio?

Many people use an inverted yield curve as a signal to change their AA. This is because when the yield curve inverts, this means some investors are moving money from equities and into treasures because they believe equities were getting risky and the stock market may decline. What is wrong with putting money where the money is going by other investors?

My Point: A passive investment or a buy and hold strategy works well if you are young and you have the time for the recovery. However, Do you continue this same strategy when you are in your 70's, 80's 90's? Will you still be in equities on your death bed?

If I had an infinite life, I will be a passive investor and adopt a buy and hold strategy forever. In reality, I have a finite life....so I had to change my strategy. You may have 45 years of successful investing experience but I also have about 45 years of successful investing experience. The difference is that I made a change in my strategy after 45 years and you didn't.
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Old 04-26-2020, 10:28 AM   #82
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Nothing wrong with making money, reallocating, deciding where to put it. Everything wrong with thinking you are some kind of genius based on one data point, thinking you have discovered a simple new killer scheme for making money that no one on the planet had ever found before, and with randomly and routinely insulting people along the way.

Yes I will be in equities on my death bed, very serious seven figures invested for the heirs and beneficiaries of our estate. And yes, I also made a change in strategy but it was after about 30-35 years of doing more or less what you're doing (but with less arrogance). My conclusion, and there is a mountain of statistical and academic evidence to support it, was that what I had been doing was suboptimal.

You'll insist on the last word. You can have it.
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Old 04-26-2020, 10:55 AM   #83
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I'm not keen of VBLTX as a long-term hold because of interest rate risk (duration is 16 years) and to a lesser degree, credit quality (45% in A and Baa credits).
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Originally Posted by COcheesehead View Post
I must be missing something. The summary of VBTLX that I am looking at shows 81% is in high quality A - AAA bonds, no junk and the duration is 6.22 years. As a core intermediate holding, I think thatís fine.
Strike that... I was looking a VBLTX rather then VBTLX.
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Old 04-26-2020, 11:41 AM   #84
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What is wrong with Total Bond Index Fund VBTLX ??

The predominant portion of my fixed income is in VBTLX, apart from a minor portion in VWIUX Inter. Term Tax Exempt, & have nearly 3 yrs of living expenses in Online Savings. I have held VBTLX for a long time.

Am I missing something, I admit do not understand much about Bonds. Is ignorance the bliss my situation.

I am almost 64, & am at somewhere between 50/50 to 60/40 after the recent market upheavals.

What do you guys think ?

My comments:

(1) VBTLX performances are very close to the Bloombarc Capital Benchmark

(2) The 2020 1st quarter return is +3.27% which is good during a crash.

(3) VBTLX's historical numbers also look very good. Add the fact that it is mostly treasuries and other government securities, this make VBTLX a good bond investment to balance out any riskier equities during uncertain times.
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Old 04-26-2020, 12:18 PM   #85
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The explanation is the links that I already provided. Trading in and out of large positions are what some investors do ...but not all. Results really matters. I am providing information and knowledge. If you do not want to use additional knowledge from the links that i provided, that is perfectly fine. However do not believe that choosing the right mix and being passive is the only way to go. Being pro-active is another way provided you have more knowledge.

Case in point. This nation was passive when the corona virus hit due to lack of knowledge but next time I expect this nation will be more pro-active. I got caught being passive during the last recession in 2008 just like everyone else. This time I was prepared. I became more pro-active and here are the result: "This is my best bear market ever". I will let you argue with success. In the future in about 10 years when the yield curve inverts, i will continue to be pro-active and you can continue to be passive and you can ignore the opportunities that treasuries can potentially provide in the links that I provided. That is your choice which I respect since I was a passive investor in 2008.
Unfortunately:

"It seems the yield curve has been a less reliable predictor of recession since the late 1980s."

https://www.thinkadvisor.com/2020/04...s-the-yield-c/
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Old 04-26-2020, 12:31 PM   #86
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Nothing wrong with making money, reallocating, deciding where to put it. Everything wrong with thinking you are some kind of genius based on one data point, thinking you have discovered a simple new killer scheme for making money that no one on the planet had ever found before, and with randomly and routinely insulting people along the way.

Yes I will be in equities on my death bed, very serious seven figures invested for the heirs and beneficiaries of our estate. And yes, I also made a change in strategy but it was after about 30-35 years of doing more or less what you're doing (but with less arrogance). My conclusion, and there is a mountain of statistical and academic evidence to support it, was that what I had been doing was suboptimal.

You'll insist on the last word. You can have it.

My last word: This forum stated:

How much are people willing to go to cash reserves from bonds at this time? How much and why?

I already provide my opinion and input to this question. See my comment #61.

Unless I missed it, I do not see your opinion or your input on this question. I only see your rebuttals to my comments....which is OK to me due to your 1st amendment rights.
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Old 04-26-2020, 12:54 PM   #87
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Thanks for your input everyone about VBTLX, I will continue learning.....
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Old 04-26-2020, 01:40 PM   #88
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Unfortunately:

"It seems the yield curve has been a less reliable predictor of recession since the late 1980s."

https://www.thinkadvisor.com/2020/04...s-the-yield-c/

My comment: Your link is to an article at thinkadvisor.com by Mike Patton that states an "opinion" and not data. Data should carry more weight than opinions.

Here is a link to numerous charts of the historical data of recessions and yield curve. It is really up to people to make an opinion on this data. In the first chart in this link, the grey represents recessions and the line below the horizonal axis represents yield curve inversion. There were 2 false positives. However, 7 inversions = 7 recessions. Hence: 7 out of 9 inversions are pretty good odds. A baseball player getting 7 hits every 9 at bats will be a highly paid baseball player.

https://www.advisorperspectives.com/...d-yield-curves

I never make decisions on people's opinions unless it is someone I really know well and that someone have a good track record. I do not know who the author of your article is (Mike Patton) and I do not know what his track record is.

Do you know Mike Patton? What is his track record on his predictions?
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Old 04-26-2020, 02:20 PM   #89
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What is wrong with Total Bond Index Fund VBTLX ??

The predominant portion of my fixed income is in VBTLX, apart from a minor portion in VWIUX Inter. Term Tax Exempt, & have nearly 3 yrs of living expenses in Online Savings. I have held VBTLX for a long time.

Am I missing something, I admit do not understand much about Bonds. Is ignorance the bliss my situation.

I am almost 64, & am at somewhere between 50/50 to 60/40 after the recent market upheavals.

What do you guys think ?
You are fine.

I don’t worry about interest rate risk because I rebalance. Interest rates go up and down. And you never know the timing. I’m comfortable with short and intermediate duration bond index funds considering that I am holding them for a very long time.
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Old 04-26-2020, 02:26 PM   #90
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Will you still be in equities on your death bed?
Yes.
I expect to die with 80/20.
I expect my wife to die 10 years later with 85/15.
The models say that our daughter will inherit somewhere between $100K and $12M.
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Old 04-26-2020, 02:50 PM   #91
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Nothing wrong with making money, reallocating, deciding where to put it. Everything wrong with thinking you are some kind of genius based on one data point, thinking you have discovered a simple new killer scheme for making money that no one on the planet had ever found before, and with randomly and routinely insulting people along the way.

Yes I will be in equities on my death bed, very serious seven figures invested for the heirs and beneficiaries of our estate. And yes, I also made a change in strategy but it was after about 30-35 years of doing more or less what you're doing (but with less arrogance). My conclusion, and there is a mountain of statistical and academic evidence to support it, was that what I had been doing was suboptimal.

You'll insist on the last word. You can have it.

Thank you @oldshooter, my sentiments exactly. A little more than half way through Taleb's "Fooled By Randomness" Great read....can't help but think about monkeys and typewriters.
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Old 04-26-2020, 02:59 PM   #92
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I would either go online or go to your local bank to start comparing the latest 3 years Jumbo CD rates that is federally insured.

Buying a 3 year treasury directly from the government is an option but the coupon yield is subject to the auction price.

ST Treasury bond funds such as VFINX is an option but there is some volatility and there is an expense ratio.

AAA bonds also have volatility and some risk. I would not recommend anything lower than AAA since the economy is being stressed and bankrupcy of companies less than AAA rated is a concern.

Since you are about the same age as myself, Jumbo 3 years CD rates are probably your best bet. I invest in treasuries because I am more of a risk taker and you have not mention your risk tolerance. I am assuming your risk tolerance is low and this justify a 3 years Jumbo CD recommendation.

Bad information....VFINX is not a treasury bond fund. It is a S&P 500 Equity index fund.
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Old 04-26-2020, 03:52 PM   #93
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Strike that... I was looking a VBLTX rather then VBTLX.
Pb4uski,
Please give your opinion about Total Bond Index Fund Admiral, I value & learn from your opinions.

Audrey,
Thanks for your input, In general I too buy & hold the core funds like Vbtlx, Vtsax & so on in my 5 Fund Portfolio.
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Old 04-26-2020, 04:00 PM   #94
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Pb4uski,
Please give your opinion about Total Bond Index Fund Admiral, I value & learn from your opinions. ...
My main concern with BND would be interest rate risk, but I'll concede that for the long-term investor who plans to hold more than BND's 6.2 year duration that perhaps it'll all work out if interest rate increase. But the 6.2% decline in value if interest rates increase 1% could be disheartening short term. While I prefer CDs I'll concede that they are a bit of work.

FWIW, I don't hold any but my 90 yo Mom whose money I manage for her and my siblings do... like I said , credit union CDs are work.
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Old 04-26-2020, 04:07 PM   #95
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But the 6.2% decline in value if interest rates increase 1% could be disheartening short term. While I prefer CDs I'll concede tha they are a bit of work.
But that’s not what we experienced in 2018. In reality it’s far more complex than that. If you look at periods of rising interest rates since 2000, core intermediate bond funds often hold up pretty well and tougher years are often followed by boon years. 2019 was a spectacular total return year for most core bond funds.

So I don’t try to anticipate interest rate directions, but just keep rebalancing annually or thereabouts.
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Old 04-26-2020, 04:45 PM   #96
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Bonds have their purpose, but I've learned that they can go down in value, and they don't have the long term growth potential as equities. I also learned the hard way that if you buy an individual bond and rates go down that it can get called in. I've also seen them default. I'm not a bond guy.
I just had a bond called. Other than not making the interest until maturity, why is this a bad thing?
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Old 04-26-2020, 04:55 PM   #97
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But that’s not what we experienced in 2018. In reality it’s far more complex than that. If you look at periods of rising interest rates since 2000, core intermediate bond funds often hold up pretty well and tougher years are often followed by boon years. 2019 was a spectacular total return year for most core bond funds.

So I don’t try to anticipate interest rate directions, but just keep rebalancing annually or thereabouts.

I don't try to anticipate rate direction either. All of my bond holdings are in intermediate core funds. I do however have about ~3.5 years annual spending in cash (cd's and high yield savings accts) that I have been living on since FIRE 2 years ago.....actually it will be exactly 2 years tomorrow. At some point I will decide how low I will let the cash position get before I replenish with some sales of stocks or bonds.
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Old 04-26-2020, 05:24 PM   #98
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Yes.
I expect to die with 80/20.
I expect my wife to die 10 years later with 85/15.
The models say that our daughter will inherit somewhere between $100K and $12M.
Good for you.

I have a different goal. If passed away with too much money, I feel like I cheated myself.

As far as my heirs, it is better to transfer my assets while I am still alive...instead after I am dead.

For example, I recently purchased a single family home in California for my daughter with 100% cash so my daughter will never have to pay rent or a mortgage payment in her life. She is still going to college so she never have to take out a student loan to pay room and board or tuition. After graduation, I expect her to sock away most of her pay as a registered nurse so she can be a FIRE or financially independent retired early. When you do some calculation on the interest on a mortgage or on a student loan she will be saving, then you can understand why I adopted this strategy. The property is in joint ownership so when I pass away, she automatically get the property with a stepped up basis.

She enjoys my wealth at a young age instead of waiting for me to kick the bucket.
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Old 04-26-2020, 05:26 PM   #99
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I don't try to anticipate rate direction either. All of my bond holdings are in intermediate core funds. I do however have about ~3.5 years annual spending in cash (cd's and high yield savings accts) that I have been living on since FIRE 2 years ago.....actually it will be exactly 2 years tomorrow. At some point I will decide how low I will let the cash position get before I replenish with some sales of stocks or bonds.
Yes, I have cash too, as well as short-term bond funds. Itís a bit like a ladder in a way. I rebalance between them.
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Old 04-26-2020, 06:12 PM   #100
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I just had a bond called. Other than not making the interest until maturity, why is this a bad thing?
Because it is likely that if you reinvest the proceeds in a bond of similar remaining term and credit quality that the yield will be lower than the yield that you were receiving on the bond that got called.
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