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Old 07-14-2021, 08:06 PM   #61
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^^^ They do not own the S&P per se, but own options that have the S&P as the underlying asset. The values of these options are tied to the S&P.
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Old 07-14-2021, 08:15 PM   #62
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Hopefully you will be able to get the new sources of income going.

I don't want to reiterate what others have said, but to explain why I don't consider the fund all that diversified, this PIMCO fund is basically saying they "emulate" the sp500, and it does hold futures of the sp500 (which are a type of bond) in a portion of it, but it then takes a series of extreme long/short positions to basically concentrate where the fund is positioned at different times basically through a type of leverage, just not a straightforward one. This is not what is traditionally considered as diversification, because the whole point of this fund is to move away from the main focus of diversification, based on the fund manager's investing style at the time, to the point of making it potentially sometimes act much more severely (with more volatility) than the SP500 ever would, similar to an undiversified stock.
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Old 07-14-2021, 08:38 PM   #63
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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. ...
OK, maybe not undiversified regarding those holdings, but clearly they are trying to do something different with them, in order to beat the market. So it's not the same (if it were, we wouldn't be having this discussion!).

So maybe consider it undiversified from a management team perspective. You have a lot of eggs in one management team. What if the team changes, what if their strategy no longer works (relative to the market)? What if hundreds of funds copy their strategy, making it harder to implement?

With the broad passive index funds, there really is no management team, you get what the market dishes out. There is no management team risk, just market risk.

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Old 07-14-2021, 08:47 PM   #64
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^^^ They do not own the S&P per se, but own options that have the S&P as the underlying asset. The values of these options are tied to the S&P.
Can you point me to those rows in the holding spreadsheet? I did see one S&P related futures on row 699, but that appeared to be less than 15 basis points of the fund's assets.
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Old 07-15-2021, 08:13 AM   #65
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Can you point me to those rows in the holding spreadsheet? I did see one S&P related futures on row 699, but that appeared to be less than 15 basis points of the fund's assets.
I just went by the fund's broad view that it has 100% stock exposure, 160% bond, and -160% cash.

Just now, went into the detailed spreadsheet that you mentioned, and saw a lot of things laymen like myself would not know. Indeed, the tiny S&P future you mentioned did not amount to anything. I saw a lot of CDS (Credit Default Swap) that I did not understand.

I guess perhaps the fund computes its equity risks to be equivalent to holding 100% stock somehow. This high finance stuff is complicated. It's a far cry from the simplistic option contracts that I dabble in.
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Old 07-15-2021, 08:22 AM   #66
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OK, maybe not undiversified regarding those holdings, but clearly they are trying to do something different with them, in order to beat the market. So it's not the same (if it were, we wouldn't be having this discussion!).

So maybe consider it undiversified from a management team perspective. You have a lot of eggs in one management team. What if the team changes, what if their strategy no longer works (relative to the market)? What if hundreds of funds copy their strategy, making it harder to implement?

With the broad passive index funds, there really is no management team, you get what the market dishes out. There is no management team risk, just market risk.

-ERD50
I think this is the best argument against virtually any non-index fund. Beating the market has been shown time and again to be a matter of "luck" (for want of a better word.) It also adds significant fees which have been shown to be the most avoidable drag on your portfolio. I know nothing of this particular fund, but I'm guessing the fees and trading costs are substantial.

Having said that, I wouldn't try to talk anyone out of investing the way they see fit. For me, index investing is "easy." It beats most funds in the long run. It's also cheap. Just what a "couch potato" wants in a portfolio. Couch Potato is a reference to Scott Burns recommendation of an AA made up of 2 or 3 index funds only. See https://www.optimizedportfolio.com/c...o-Portfolio-EM and https://couchpotatoinvesting.com/ In any case, YMMV.
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Old 07-15-2021, 09:03 AM   #67
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I guess if countless hours of research and comparing against other options over several months is considered "lucky," then yes.
Yes. This kind of thing is mostly luck. There is a half-century worth of solid data that says the best model of the market and of individual securities prices is as a random process. This is the foundation of Modern Portfolio Theory as proposed by Harry Markowitz in 1952. Here's a good way to spend a few minutes understanding this: https://famafrench.dimensional.com/v...-managers.aspx

One consequence of this is that past performance is not predictive. This is incredibly un-intuitive to people but it is the case. One good reference is S&P's "Manager Persistence" reports that are published semi-annually. "Persistence" refers to a fund manager's past performance being predictive. Each of these reports is basically the same -- little or no persistence.

Here is a chart I have posted before, showing the 5-year results of managers who were successful in the prior 5 years.

The bar on the left separates the thousands of managers into quintiles, where the green block is the top 20% of managers for the first five year period. To the right, then, is the bar representing those managers' performance in the subsequent 5 years.


For more on this, read Nassim Taleb's "Fooled by Randomness." One of his themes is traders who, having gotten lucky, conclude from that that they are geniuses. BTDT, learned my lesson years ago.

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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.
Actually, it is much easier for a fund to look good when it is tiny, specifically because its tiny trades have no market effect. As soon as the trades get to be any size at all, the price runs away from the fund's trader while he is executing the trade. Some of this is normal market action and some is skilled front-runners, usually program traders' computers. But it is a significant cost where turnover is high like it is in PSLDX. Lack of market impact makes the fund look better than it will be. Also, it is common for expenses to be subsidized or waived for new funds, again making them look artificially good.

The other thing to consider is whether the fund may be an incubated fund. This is an especially sneaky way of misleading potential investors: https://www.investopedia.com/terms/i/incubatedfund.asp
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Old 07-15-2021, 09:19 AM   #68
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... The other thing to consider is whether the fund may be an incubated fund. This is an especially sneaky way of misleading potential investors: https://www.investopedia.com/terms/i/incubatedfund.asp
Very interesting, I was not aware (or forgot!) about this.

Is there a way to determine if a fund's historical record includes the "incubation period"? I would hope the various charts available on the web only show the time period that it was public (though, I suppose a 'trick' to that would be to simply not advertise the fund, essentially keeping it private, even though technically it is public).

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Old 07-15-2021, 12:04 PM   #69
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... Is there a way to determine if a fund's historical record includes the "incubation period"? ...
Not if the hucksters can help it.

There is kind of an analogous scam where the hucksters trumpet "all of our funds beat the S&P over the last ten years", not mentioning that the ones that didn't have been killed off. See: https://www.investopedia.com/terms/s...orshipbias.asp
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Old 07-15-2021, 12:29 PM   #70
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The risk with these new funds is not the same as with the normal funds that load up on hot stocks. An example of the latter is the Ark fund family run by Cathie Wood.

The funds like PSLDX deal in derivatives that individual investors do not get access to, nor know how to evaluate. The latter is what concerns me the most. Looking at these CDS's reminds me of all the CDSs and CDOs that blew up in the subprime mortgage crisis.

I am not saying the same will happen here, but with derivatives that are not traded in the open market, how are their values determined? Even common stocks and options that are liquidly traded in the open market already have their values called "ethereal", let alone something illiquid that may be traded only between a few players.
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Old 07-15-2021, 12:46 PM   #71
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I think this is the best argument against virtually any non-index fund. Beating the market has been shown time and again to be a matter of "luck" (for want of a better word.) It also adds significant fees which have been shown to be the most avoidable drag on your portfolio. I know nothing of this particular fund, but I'm guessing the fees and trading costs are substantial.

Having said that, I wouldn't try to talk anyone out of investing the way they see fit. For me, index investing is "easy." It beats most funds in the long run. It's also cheap. Just what a "couch potato" wants in a portfolio. Couch Potato is a reference to Scott Burns recommendation of an AA made up of 2 or 3 index funds only. See https://www.optimizedportfolio.com/c...o-Portfolio-EM and https://couchpotatoinvesting.com/ In any case, YMMV.
All index funds owns swaps, derivatives and contracts in lieu of actual stocks, read the brochure and details of any of them. This fund has overperformed because it owns long dated derivates which track the S&P500 index which trade at a discount to the actual stocks while not investing the full amount of money and then utilizes long bonds on top giving it a blended rate and a juiced up return.

I would imagine in a decline of major proportions this fund would decline more than the index, which it did from Feb-March 2020 down 37% vs 32% for the S&P500, however it also recovered much faster by two weeks and since Jan 2020 is up 6% more than the S&P500 38% vs 32%. It also absolutely destroys the S&P 500 in the last 10 years 830% vs 395% again mainly because of the investment in long bonds and long term derivatives in the S&P500.

In a long sideways move in the market, similar to 1966 to 1981, this particular investing style would also underperform the indexes, as time value would crush the derivatives. IN a rising interest rate enviroment with the stock market falling, this fund would fall the most.
But the performance is not luck it is design, when yields are falling, stocks go up and this fund capitalizes on that trend. The fact that we have been in this trend since 1981 led the fund managers to this solution.
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Old 07-16-2021, 08:48 AM   #72
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But the performance is not luck it is design, when yields are falling, stocks go up and this fund capitalizes on that trend. The fact that we have been in this trend since 1981 led the fund managers to this solution.
If I buy this argument, then I would still suggest there is "luck" involved. The "luck" is whether the market trend (in this case falling yields) reverses. That would be "bad" luck for this fund if I understand your premise.

But, when I spoke of "luck" it was more along the lines of what OldShooter pointed out. Out of all the funds, a few will win the coin toss 15 out of 20 times. But the odds of the next coin toss do not change. It's still a 50/50 toss.

True, rising markets will lift all (well, most) funds. So a 14 year old fund can look pretty good as long as the coin toss went well during one downturn (the great recession.) Now, admittedly, I'm telling you WAY more than I know, but I still maintain that the stock market goes up in general with some more or less random ups and downs along the way. Best way (IMHO) to play the game is to bet on the total market and pay very little to play the game.

No special insight on my part so I can't argue with this particular fund's strategy. Maybe it's NOT luck, but only time will tell. In the mean time, I'm paying (I forget - it's been so long since I looked) 10 basis points to manage my index funds. YMMV
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Old 07-16-2021, 10:14 AM   #73
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The holy grail of investment strategies is this:

1) If the market goes up, I match it, or go up even more.

2) If the market goes down, I lose less, or perhaps even gain.


Being an active investor, what I have found with my performance is this:

2-a) If the market goes down, I go down more.
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Old 07-21-2021, 06:33 AM   #74
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I'm not sure if I can articulate this right, but I'd suggest really taking a step back and thinking about why you want this and what you want it to look like verses reality.

COVID and working from home has changed a lot of attitudes, mine included. I dream and plan for retirement every day. I am a HUGE planner. I can honestly say looking back on my life that nothing I originally planned worked out like intended. You are basing your financial security for 50-60 years on your understanding and state of the world today.

When I see you and your wife is 32 but you "both wanted to retire early", to me thats a head tilt. Based on your occupation, you graduated from college at 26ish? So in 5 years, you hate your occupation, your current employer, or both? I say this only to point out there are many "fields" in your profession and not all require one to compromise their integrity. Grisham's book "Street Lawyer" shows us that. Is RE really the goal verses getting out of a bad work position vs an entirely new speciality in your field? Is your wife working? If not, RE would not change her circumstances at all since you have small children. What is the catalyst for her RE desire?

On the financial side, everyone has pointed out that it could work. My concern is your plans need to be accurate for 50-60 years in the future. To me, it just seems like a daunting task to project and provide financial coverage that far in the future with two very young children.

I guess the entire point of this is to point out that the FIRE bug can allow one to make sub-optimal choices. Just make sure you are RE to something and not from something.
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Old 07-21-2021, 06:52 AM   #75
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Is your wife working? If not, RE would not change her circumstances at all since you have small children.
This seems very odd to me. Having two parents at home sharing the burden of raising small children is 1000% different from just one parent at home. And my personal experience includes many different combinations of parents, kids, working, going to school, and being retired.
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Old 07-21-2021, 06:57 AM   #76
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This seems very odd to me. Having two parents at home sharing the burden of raising small children is 1000% different from just one parent at home. And my personal experience includes many different combinations of parents, kids, working, going to school, and being retired.
Totally agree. The point being is the OP mentioned how much he dislikes his job and the desire to RE. For his wife, he mentions her desire to RE, but doesn't say why. Many wives get on board on things to support the husband, etc. Is she on board or is this a true desire. If a true desire...why?
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Old 07-21-2021, 07:46 AM   #77
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The desire to RE has always been a dream. Who wouldn't want to be free to do whatever you desire and have the money to support it? The more recent push to make that dream a reality has come from several life events. The main 2 being, we both experienced very unexpected losses of love ones and both want to be more involved in our children's' education and lives. My wife was also in an accident that has kept her out of work for the last 5 months while she recovers. (Good news, its working and she will return to work soon). But all this is to say, there are deeper psychological reasons than just disliking work.

I graduated college at the age of 21, worked for a few years, then went to law school from which I graduated at 26. I strongly dislike the field I practice in and have been actively trying to change fields/go in-house. If/when this happens, perhaps my feelings about RE will change, but I still can't believe I'd rather spend my finite time on this planet at w*rk.

I do plan on spending some more time on a side gig that I enjoy and could bring in decent income. But that won't be time consuming and life restraining.

I am also a huge planner and the uncertainty of the future is certainly a concern. That's why I look to the wise people here for advice!
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Old 07-21-2021, 09:01 AM   #78
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Using 6 years post law school at $70K savings year, around $500K of your $1.5M is money you've saved, with the remaining $1M inherited? Are your current expenses around $70K/year (assuming $200K - 30% taxes - $70K savings)? Do you expect those to go up as your very young kids get older?

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Quick stats:

Age: Dw and She 32. 2 kids, 2.5 and 1.5

Current income: approx. 200k

So I've been thinking about realistically what do we need. Currently have about $1.5 million in accessible money. Majority is in a pre secure act inherited IRA (I have grown this substantially from what it was). The bulk of investments are in Pimco Stocks Plus (PSLDX). For us, this averages 100k in divedends/distributions with about 130k shares. This year dividends at $135k through 2 quarters.

Ok so we currently invest/save around $70k per year. I project expenses, including health insurance, in retirement to be around $115k if we live "large."
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Old 07-21-2021, 09:38 AM   #79
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Using 6 years post law school at $70K savings year, around $500K of your $1.5M is money you've saved, with the remaining $1M inherited? Are your current expenses around $70K/year (assuming $200K - 30% taxes - $70K savings)? Do you expect those to go up as your very young kids get older?
A few years off on the savings. I've been a saver since I was a kid. I opened a Roth IRA and brokerage account when I turned 18. I've actively saved and invested in those for years. I also had a 401k in my jobs out of college and continued to work and save during law school. My wife has been saving and investing since her first job out of college as well. The inheritance was less than $1M.

The numbers i gave were approximates. $70k is higher than our current expenses, especially now that our 6 figures of student loans are paid off. We were very aggressive in paying those down. Also income this year is down as my wife hasn't been able to work the past 5 months.

I do anticipate expenses will go up as the kids age but that will be offset for awhile with the expensive daycare not being needed when in school.
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Old 07-21-2021, 07:50 PM   #80
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How many people posting on this thread have listened to 10 or more of Barry Ritholtz's podcasts over the past 12 months? I have.

I think it would change many of your opinions about hucksters, luck and other forms of disinformation. The precondition is that you are in the capital growth mode of your investing career, which I think does not apply to many of the posters on this thread, sadly.
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