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Old 07-14-2021, 09:38 AM   #41
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Yes, but losing the bond income is a big deal. You are also losing the stock dividends.

Break it down into the components. If the total return on buying stock options on average was very close to owning the stocks, why wouldn't everyone do it? Far less of your money at risk, with similar returns - sounds great!

But of course, the option sellers want to make a profit, as they are the ones that have their money tied up holding the stock and are exposed 100% to any downside. If you want (most of) the gains, and reduced downside risk, you have to pay the piper. There is no free lunch.

So I fail to see how this strategy can work over the long run. Like most, it works until it doesn't.

-ERD50

It always helps to have a healthy level of skepticism.

But when I looked at the performance of PSLDX since 2008 till now, I've got to admit that it looks darn good against its NASDAQ benchmark, except for the last 12 months. And even then, the recent performance was not bad.

Correction: The fund benchmarks itself against the S&P, not the NASDAQ.

Is this another Madoff scheme, or at least some sleight-of-hand under-the-table dealings as suspected earlier?

And about something works until it doesn't, to play the devil's advocate some have said the same thing about the traditional 60/40 portfolio. It may just stop working in the years ahead.


PS. By the way, as mentioned elsewhere, I rarely buy options. The few times I tried, I lost money. On the other hand, I made a lot of money selling options.

Still, when someone does the reverse and makes even more money, of course I have to scratch my head. It's easy to dismiss it as BS, but perhaps there's some secret sauce that I don't know about.
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Old 07-14-2021, 09:38 AM   #42
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What this seems like to me is that you are considering continuing on a risky path with unrealistically high return expectations based on a lucky pick.
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Old 07-14-2021, 09:41 AM   #43
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....Is this another Madoff scheme, or at least some sleight-of-hand under-the-table dealings as suspected earlier?

And about something works until it doesn't, to play the devil's advocate some have said the same thing about the traditional 60/40 portfolio. It may just stop working in the years ahead.
Given it is a publicly traded fund sponsored by PIMCO, I doubt that it is a Ponzi scheme.

Those guys at PIMCO are pretty smart so I suspect that it is legit... how long they can continue to deliver better than average performance is a question... what happens if/when the current manager changes?
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Old 07-14-2021, 09:47 AM   #44
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Given it is a publicly traded fund sponsored by PIMCO, I doubt that it is a Ponzi scheme.

Those guys at PIMCO are pretty smart so I suspect that it is legit... how long they can continue to deliver better than average performance is a question... what happens if/when the current manager changes?
Agree on the 1st sentence.

About your last question, investors can find out where the manager goes, and follow him.
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Old 07-14-2021, 10:00 AM   #45
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Seriously, I think PSLDX has been doing so well because of the bull market we have had.

Tech stocks have been going gangbuster. People buy SPACs because you "cannot lose". There are all kinds of promises of disruptive technologies, whether the startups actually have any product or not. Just a lot of pies in the sky or vaporware.

In the bull market of 1990-2000, how would you beat the market? Buy lots of tech stocks on margin.

I almost want to see a crash to wipe these phony companies all out, so we can start anew. But, I need to reduce my stock AA first. Darn, it's hard to quit while you are winning.
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Old 07-14-2021, 10:31 AM   #46
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Agree on the 1st sentence.

About your last question, investors can find out where the manager goes, and follow him.
Unless s/he retires!
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Old 07-14-2021, 10:51 AM   #47
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What this seems like to me is that you are considering continuing on a risky path with unrealistically high return expectations based on a lucky pick.
I guess if countless hours of research and comparing against other options over several months is considered "lucky," then yes.

No one seems to be recognizing how this fund survived the Great Recession soon after it was created and then thrived. This isn't some new hot fund without any track record. It has 14 years of operation including the Great Recession.
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Old 07-14-2021, 10:54 AM   #48
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I guess if countless hours of research and comparing against other options over several months is considered "lucky," then yes.

No one seems to be recognizing how this fund survived the Great Recession soon after it was created and then thrived. This isn't some new hot fund without any track record. It has 14 years of operation including the Great Recession.
@Life_by_Fire donít let the naysayers slow you down. Bypass this type of response and continue on your path.
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Old 07-14-2021, 12:15 PM   #49
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I guess if countless hours of research and comparing against other options over several months is considered "lucky," then yes.

No one seems to be recognizing how this fund survived the Great Recession soon after it was created and then thrived. This isn't some new hot fund without any track record. It has 14 years of operation including the Great Recession.
I'll stipulate that countless hours were spent researching and that the fund thrived. Sorry, but if your good run over the last few years has convinced you that you can expect higher returns then the market going forward, in my opinion yes you have confused luck for financial acumen.
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Old 07-14-2021, 12:51 PM   #50
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I guess if countless hours of research and comparing against other options over several months is considered "lucky," then yes.

No one seems to be recognizing how this fund survived the Great Recession soon after it was created and then thrived. This isn't some new hot fund without any track record. It has 14 years of operation including the Great Recession.
I'll stipulate that countless hours were spent researching and that the fund thrived. Sorry, but if your good run over the last few years has convinced you that you can expect higher returns then the market going forward, in my opinion yes you have confused luck for financial acumen.
I'm not sure each of you is talking about the same thing.

I think Scratchy means the fund may have just been lucky with a strategy or picks that have done well over this period (there's always some fund out there that outperforms - whether that holds going forward is the big Q).

But I think Life_by_Fire is talking about the "luck" of picking that fund. The fund has been around 14 years, so I think the "hours and months" refers to Life_by_Fire's efforts, not the fund's. But it's not hard to find a fund that has done well in the past, that's an easy screen.

Do I have that right?


So Life_by_Fire, when did this fund get picked? Was it already in the inherited IRA?

-ERD50
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Old 07-14-2021, 01:11 PM   #51
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I'm currently doing something similar to this for my stock allocation that I explained in the options thread... I buy very long LEAPS as a stock substitute.

And I'm in a dilemma as to how to count it towards my AA... using your example whether to use the notional amount (100 in your example) which is the amount of the investment that I will get appreciation from based on market performance... ot the 25c that I paid for the option (in reality it is more like $9 rather than 25c for a long term option).

SWAN uses a similar strategy... 90% of the fund is in ~10 year UST and 10% of the fund is invested in SPY 12 mo call options... at 6 month intervals so they have half 6 month call options and half 12 month call options.

I never heard of the funds PSLDX and SWAN until this thread. And I have learned something very interesting.

Both hold bonds, and use the bond income to buy stock options. But after that, the two are quite different.

PSLDX states that its goal is to beat the S&P. SWAN's objective is to have some gain in a bull market, while protecting itself in a black swan event. And both funds indeed show behavior and performance consistent with their objectives.

In the crash of 2008-2009, PSLDX lost just as much as the S&P. Since that time, the market has been generally in a bullish mode, and PSLDX indeed beats the S&P. And that's because it uses leverage to get the excess return. And it exhibits higher volatility, which is the price to pay.

On the other hand, SWAN uses option trading to reduce volatility, with the understanding that it may trail the S&P in a hot market.

SWAN's inception was fairly recent in Dec 2018. Hence we would not know how it would do in a bear market. However, the performance in its short life has been decent. It has about the same performance as the popular Wellington with the 60/40 AA. However, SWAN volatility is significantly less. I have to say it's impressive.

If an investor thinks the market will stay in a hot streak, he should buy PSLDX. If he wants to be more conservative, he will like SWAN.

I may get a bit of SWAN myself.
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Old 07-14-2021, 01:14 PM   #52
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I'm not sure each of you is talking about the same thing.

I think Scratchy means the fund may have just been lucky with a strategy or picks that have done well over this period (there's always some fund out there that outperforms - whether that holds going forward is the big Q).

But I think Life_by_Fire is talking about the "luck" of picking that fund. The fund has been around 14 years, so I think the "hours and months" refers to Life_by_Fire's efforts, not the fund's. But it's not hard to find a fund that has done well in the past, that's an easy screen.

Do I have that right?


So Life_by_Fire, when did this fund get picked? Was it already in the inherited IRA?

-ERD50
Yes, that is a fair summary thank you. I hope I was not sounding harsh or derogatory, that's not my intention. But I would not count on returns in the future to continue to be higher than the market.
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Old 07-14-2021, 01:18 PM   #53
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The first purchase of PSLDX was in July 2020, I believe. It was not in the IRA before then. Before then, the holdings were a complicated mixture of ETFs and funds selected by the decedent's FA. Unsurprisingly, that portfolio performed poorly.

While I can appreciate skepticism, things appear to be heading into nonconstructive dismissiveness. While I have nothing to prove to anyone, I can assure you selecting this fund was not the result of an "easy screen" but a laborious exercise that resulted in the chosen AA which includes more than PSLDX.

The question of "will it continue to perform going forward" can only be answered with "nobody knows nothing." It is a question that I researched and considered in my decision. It is a question that should be asked of any investment but should be done with intension, not derision.
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Old 07-14-2021, 01:29 PM   #54
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While I can appreciate skepticism, things appear to be heading into nonconstructive dismissiveness
Apologies for any offense, will sign off from this thread.
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Old 07-14-2021, 01:33 PM   #55
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.... The question of "will it continue to perform going forward" can only be answered with "nobody knows nothing." It is a question that I researched and considered in my decision. It is a question that should be asked of any investment but should be done with intension, not derision.
Fair point, and if it were just a significant piece of an overall balanced portfolio then I don't think you would be getting much pushback at all... many of us have little tilts and bets in our portfolio (then again, others do not).

The difference is that as I understand it you will be essentially betting your retirement and financial life on PSLDX because it will be 50-65% of your total portfolio and that is what so many posters are uncomfortable with. If at some point PSLDX's unique strategy has a big fail then you are screwed.... if the 50-65% was in a index fund then there wouldn't be as much risk of a big fail (or if it did happen then you would have a lot of company).
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Old 07-14-2021, 02:05 PM   #56
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I am aware of those things. We are at our current desired AA. I don't wish to get rid of PSLDX but I won't hold it in a taxable account. So as we take RMDs, those PSLDX shares will be converted to VTSAX and VTIAX in a taxable account. This is in line with our planned glide path AA as we get closer to retirement.

I understand the risks of this fund but for now am willing to accept them. As we near and enter retirement, we will be less inclined to take on those risks. So the transition is a glide path. Does that make sense now?
Yes, if this is your plan and glide path, it makes sense to me.

I think I was thrown off by the phrase "if it helps". I misinterpreted it as "if it helps the rest of you feel better about my investment decision" instead of "if it helps the rest of you understand my investment plan". The former makes no sense to me; the latter makes perfect sense.

It seems you are fortunate that your current allocation to this fund, your financial plan's glide path, your retirement plans, and your inherited RMDs all line up. I've had the same thing happen to me in another area of my financial life and it's nice because it makes things easier for me, as I suspect it has for you.

Thanks for the reply, I appreciate it.
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Old 07-14-2021, 02:07 PM   #57
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Fair point, and if it were just a significant piece of an overall balanced portfolio then I don't think you would be getting much pushback at all... many of us have little tilts and bets in our portfolio (then again, others do not).

The difference is that as I understand it you will be essentially betting your retirement and financial life on PSLDX because it will be 50-65% of your total portfolio and that is what so many posters are uncomfortable with. If at some point PSLDX's unique strategy has a big fail then you are screwed.... if the 50-65% was in a index fund then there wouldn't be as much risk of a big fail (or if it did happen then you would have a lot of company).
A fair point and I appreciate it. My wife and I have chosen to take that risk at this stage and glide the AA to a less risky AA as retirement approaches. I really do encourage everyone to research risk parity approaches though as funds like this are, I believe, less risky than some think at first glance.

Here is a recent interesting article on PSLDX: https://seekingalpha.com/article/443...early-14-years
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Old 07-14-2021, 03:20 PM   #58
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Not exactly sure what $ amount you are aiming for ER, after saying you are decreasing it from 5M to 200k shares (?). It sounds like you know your living expenses. 5M does sound a bit high, but if your aim is still $115k in expenses (including all future child expenses), and you both want to retire in your 30's, generally you need some at or a bit below 3.5% withdrawal rate to last that long at something near 100%. So while that doesn't add up to 5M, it does add up to at least 3.3M.

So, if your job is driving you crazy, try to find another income stream to makeup for that remaining 1.8M. And/or find comfortable ways to lower your expenses.

As other's have said, the PIMCO is highly undiversified, and looks like it has a much higher risk profile than even a total or cap tilted index fund, the only way it could be any riskier is if it was leveraged on top of all that. It is extremely concerning it has only briefly weathered a down market so you can see just how much volatility is packed in there, the starting date is basically right near the beginning of the bull market. It basically feels like this fund was created as one of many test funds at just the right time, was one of the lucky few to survive, and is being kept until the next downturn at which it will very likely get clobbered and suddenly perform much worse than an average fund, at which point the fund will be delisted, or at least never have an article written about it again. This is an incredibly common tactic used by active management companies to show they are "winners". I won't mention much more than that since it has been talked about to death.
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Old 07-14-2021, 03:51 PM   #59
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Not exactly sure what $ amount you are aiming for ER, after saying you are decreasing it from 5M to 200k shares (?). It sounds like you know your living expenses. 5M does sound a bit high, but if your aim is still $115k in expenses (including all future child expenses), and you both want to retire in your 30's, generally you need some at or a bit below 3.5% withdrawal rate to last that long at something near 100%. So while that doesn't add up to 5M, it does add up to at least 3.3M.

So, if your job is driving you crazy, try to find another income stream to makeup for that remaining 1.8M. And/or find comfortable ways to lower your expenses.

As other's have said, the PIMCO is highly undiversified, and looks like it has a much higher risk profile than even a total or cap tilted index fund, the only way it could be any riskier is if it was leveraged on top of all that. It is extremely concerning it has only briefly weathered a down market so you can see just how much volatility is packed in there, the starting date is basically right near the beginning of the bull market. It basically feels like this fund was created as one of many test funds at just the right time, was one of the lucky few to survive, and is being kept until the next downturn at which it will very likely get clobbered and suddenly perform much worse than an average fund, at which point the fund will be delisted, or at least never have an article written about it again. This is an incredibly common tactic used by active management companies to show they are "winners". I won't mention much more than that since it has been talked about to death.
$5 million is the, "I know we are safe for whatever number." I am working on 2 other income streams currently that could be lucrative but take time to establish.

I have been meaning to ask how PSLDX is undiversified. It carries anywhere from 775 to well over 800, almost 900 bonds and the S&P500. It was also created right before the Great Depression and weathered it, which is difficult for a new fund, especially a leveraged one. Its a bit unfair to say it was created at the beginning of a bull market. That's like Northwestern Mutual failing to include 2008-09 in its return statistics, which they do. I would argue that as a leveraged fund it was created at the absolute worst time possible within the last 90 years.
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Old 07-14-2021, 05:53 PM   #60
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I have been meaning to ask how PSLDX is undiversified. It carries anywhere from 775 to well over 800, almost 900 bonds and the S&P500. It was also created right before the Great Depression and weathered it, which is difficult for a new fund, especially a leveraged one. Its a bit unfair to say it was created at the beginning of a bull market. That's like Northwestern Mutual failing to include 2008-09 in its return statistics, which they do. I would argue that as a leveraged fund it was created at the absolute worst time possible within the last 90 years.
Per the holdings report from:

https://www.pimco.com/en-us/investme...tion-fund/inst

As of 3/31/2021 PSLDX owned:

Approximately 560 bonds, of which approximately 500 were corporate bonds in only three sectors (banking/finance, industrials, utilities).

None of the S&P500 index as far as I could see (the fund benchmarks itself against the S&P500 but appears to own bonds, derivatives, forward currency spreads, and other stuff).

And I'm sure you meant great recession (2008) not Great Depression (1929).
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