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Old 09-08-2018, 05:37 AM   #41
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Why avoid bond funds?
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Old 09-08-2018, 05:51 AM   #42
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Because bond funds will still be holding bonds purchased at higher prices before rates increased and the prices one pays for your slice of those bonds won’t be fully reflected in the price of the bond fund.
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Old 09-08-2018, 08:25 AM   #43
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I also have 120,000 in VGPMM. Yield little over 2%. Im happy with that .
What is VGPMM?... no such ticker that I can find.
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Old 09-08-2018, 08:55 AM   #44
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I don't think too many would disagree with that. However, not everyone has the time to wait long term. That's for young bucks. For others it's a question of "bird in the hand..." and what makes them comfortable. Cheers!
Agreed, to a point. I teach an adult ed class on long term investing and I say that "long term" possibly starts at five years, but thinking ten is better.

But ... a retiring 65YO has maybe a 20+ year life expectancy (too lazy to look it up) so is he a "young buck" per your argument? I think so. That is why most AAs of people that age should and do still have a significant tranche in equities.

90YO? No long term there, sadly. So I agree with you on that.

Comfort? Of course. We should be trying to maximize personal pleasure, not just personal wealth.
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Old 09-08-2018, 09:24 AM   #45
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What is VGPMM?... no such ticker that I can find.
Vanguard Prime Money Market.
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Old 09-08-2018, 11:33 AM   #46
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Vanguard Prime Money Market.
I own it.... ticker is VMMXX... APR of 2.1% last time I looked... a fine place to hide out for a while IMO.
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Old 09-08-2018, 11:37 AM   #47
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I hold a lot of cash now, because bonds don't look good now. My cash earns some interests too.

Inflation is rising, and so will interest rate. Yesterday, heard some argument that the Fed should not be afraid to invert the yield curve if necessary. Yikes!
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Old 09-08-2018, 11:46 AM   #48
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I own it.... ticker is VMMXX... APR of 2.1% last time I looked... a fine place to hide out for a while IMO.
I own this thanks to your comment but I only got 1.75% instead of 2.08% as stated in the fund. Can you explain to me why there is a difference? Is it the annualized thing?
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Old 09-08-2018, 12:41 PM   #49
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Click on that "C" next to the 2.08%... it says average analized income dividend over the past 7 days. But the last dividend on 8/31/18 was $0.00175 and [(1+0.00175/31)^365]-1 = 2.08%.

Where are you getting the 1.75%?
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Old 09-08-2018, 12:45 PM   #50
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Click on that "C" next to the 2.08%... it says average analized income dividend over the past 7 days. But the last dividend on 8/31/18 was $0.00175 and [(1+0.00175/31)^365]-1 = 2.08%.

Where are you getting the 1.75%?
I got $175 per $100k, so I thought it’s roughly about 1.75%. Thanks for the explanation.
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Old 09-08-2018, 06:45 PM   #51
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VGPMM? Do you mean VMMXX... Vanguard Prime Money Market fund?

And the yield is 2.11%.... the minimum investment for Admiral shares that yield 2.17% is $5,000,000... or are you a high roller with over $5,000,000?
Yes, I keep well over $5mm in cash now that rates are going up so much.
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Old 09-08-2018, 07:57 PM   #52
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Because bond funds will still be holding bonds purchased at higher prices before rates increased and the prices one pays for your slice of those bonds won’t be fully reflected in the price of the bond fund.
Those bonds purchased at higher prices will already be discounted for current rates. These funds are marked to market daily.

Bond funds are just fine, especially if you are a perpetual bond holder and want to maintain a constant duration.

I've kept my intermediate and short-term bond funds - most still show a capital gain because I've held them for a long time! And I just keep rebalancing with stock funds. With my cash allocation I've used various CDs and iBonds.
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Old 09-10-2018, 03:04 PM   #53
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Sigh.

In a lot of these threads we seem to cover the same ground. One of my favorites is the thought process that once "you have made it" that it is safe to simply cash out of the market and keep the funds in money market/savings/CD's, that is it is not necessary to risk it in the market.

Firecalc and history has shown that this thinking is suspect. Equity price risk is NOT the only risk for your financial future. All one has to do is to look at Venezuela, Argentina, or quite a few other countries to see that inflation and currency devaluation is a KILLER of those who save.

Now, you might be saying "it won't happen here". Maybe you are correct. But then again, the USA has tons of debt and super-tons of unfunded, ever growing cost programs.

We've been lucky so far in that we've had a 20+ year bond market bull rally, where interest rates have declined, which has greatly relieved the 'stress' of government deficits. If/when that turns around, the portion of the federal budget that will be required to pay interest on accumulated debt will increase dramatically.

So, just for grins and giggles, let's assume our politicians are faced with a choice: 1) dramatically tighten government spending; 2) dramatically increase taxes; 3) 'print' money (actually, just magically create it via the Federal Reserve/Treasury as most 'money' is digits in an account). Which of those three choices will be made? My bet is that they will talk about 1 & 2 and do 'something', but in reality #3 will be chosen. When that happens (a bit at a time), the inflation flood gates would open and savers will be the ones dramatically impacted.
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Old 09-10-2018, 04:24 PM   #54
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Sigh.

So, just for grins and giggles, let's assume our politicians are faced with a choice: 1) dramatically tighten government spending; 2) dramatically increase taxes; 3) 'print' money (actually, just magically create it via the Federal Reserve/Treasury as most 'money' is digits in an account). Which of those three choices will be made? My bet is that they will talk about 1 & 2 and do 'something', but in reality #3 will be chosen. When that happens (a bit at a time), the inflation flood gates would open and savers will be the ones dramatically impacted.

Just curious. How do you think this scenario would affect the stock market or bond market? Wouldn't most people cut back on buying (cars, houses, dining, electronics, etc.) and wouldn't this affect the economy. Wouldn't inflation affect everyone and not just those that are cash heavy.




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Old 09-10-2018, 04:41 PM   #55
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I don't recommend taking everything off the table and going to all cash when you have won the game. But I do like going from 80/20 to 50/50 for those that are concerned. No real reason to drop much below 30/70, though.

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Old 09-10-2018, 05:04 PM   #56
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Interesting that according to the chart that 55/45 is about the same risk as 0/100 but the return is ~2.5% higher... I wonder what the measurement of "risk" is... not sure what 11% risk means.
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Old 09-10-2018, 05:14 PM   #57
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I’m ok with 7% return. Isn’t that the average anyway. I did run FIRECALC with 25% stock, and got 0 failed cycles. Maybe a bit smaller estate, but not significantly less.
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Old 09-10-2018, 05:21 PM   #58
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Interesting that according to the chart that 55/45 is about the same risk as 0/100 but the return is ~2.5% higher... I wonder what the measurement of "risk" is... not sure what 111% risk means.
Risk is standard deviation.

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Old 09-10-2018, 06:16 PM   #59
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... I wonder what the measurement of "risk" is... not sure what 111% risk means.
The graph is what is called the "efficient frontier." It documents past relationships between return and price volatility, with volatility expressed as standard deviation and called "risk." It comes from Harry Markowitz' "Modern Portfolio Theory" first described in his PhD these in about 1951.

The problems with the graph IMO are twofold. First, people think that it is some kind of forecast. It is not. Second, while volatility is risky for people who must sell regardless of market condtions, it is a complete don't care for long term investors. For them risk is Enron, Worldcom, Sears Holdings, Theranos, etc. MPT does not consider the latter kind of risk.

The problem with using standard deviation is that it is based on a normal aka Gaussian distribution of samples. Market prices are anything but Gaussian. The distribution is skewed, asymmetric, not centered on zero, has fat tails, and, most importantly, the samples are not independent. Any advocate of momentum investing will tell you that they are not independent.

I am not a fan of the efficient frontier notion, except as just another partially flawed way to look at the unpredictable animal that is the market. YMMV, however. (Markowitz argues that the fact that the market is not Gaussian is an unimportant factor. And, to be fair, he is the guy with the Nobel. )
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Old 09-10-2018, 06:22 PM   #60
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The graph is what is called the "efficient frontier." It documents past relationships between return and price volatility, with volatility expressed as standard deviation and called "risk." It comes from Harry Markowitz' "Modern Portfolio Theory" first described in his PhD these in about 1951.

The problems with the graph IMO are twofold. First, people think that it is some kind of forecast. It is not. Second, while volatility is risky for people who must sell regardless of market condtions, it is a complete don't care for long term investors. For them risk is Enron, Worldcom, Sears Holdings, Theranos, etc. MPT does not consider the latter kind of risk.

The problem with using standard deviation is that it is based on a normal aka Gaussian distribution of samples. Market prices are anything but Gaussian. The distribution is skewed, asymmetric, not centered on zero, has fat tails, and, most importantly, the samples are not independent. Any advocate of momentum investing will tell you that they are not independent.

I am not a fan of the efficient frontier notion, except as just another partially flawed way to look at the unpredictable animal that is the market. YMMV, however. (Markowitz argues that the fact that the market is not Gaussian is an unimportant factor. And, to be fair, he is the guy with the Nobel. )
I don't know the first thing about all that, but I can understand that if you want more return, you have to take on risk and I can understand risk = volatility. That's why I picked 60/40. Not because I understand all of the intricacies of all the gobbledegook that gets spewed on many fora, but because I can live with some volatility with a reasonable shot at some return. Everything else is just noise to me. And I never try to debunk anyone else's theories or push them towards what I do. I do for me.
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