|
An alternative for part of a bond portfolio
08-03-2020, 11:54 AM
|
#1
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,797
|
An alternative for part of a bond portfolio
Bonds are at incredibly low yields. I think that a simple moving average (SMA) equity timing method will be a good way to reduce my bond exposure. This is used NOT to beat a buy-hold equity strategy. Rather this would just be to reduce the bond exposure and get decent returns. Usually people talk about such a timing method to replace a buy-hold equity portfolio but I think it is a better argument to use it as a way to beat bonds.
For my 60/40 portfolio I will take about 15% of the bond portion and move it to this SMA approach. So the 60/40 would move to a 60/25/15.
The timing method I am referring to is a simple moving average approach. You get out of equities and into Treasuries (or a money market account) when the SP500 index drops below its 12 month moving average and buy back when it rises above the moving average. This is nothing new and is pretty robust in that using an 8 or 10 or 12 month average will give better results then an intermediate Treasury bond return.
For one 12 month SMA method I’ve got backtested results for 70 years. This trades at the last day of any month. There were 32 trades in 70 years with 11 good trades and 21 whipsaws. The worst whipsaw was -12%. Here is a table showing the SMA return difference versus the Treasury. The numbers are compound annual average return (CAGR) differences.
I am posting this as a way to have a respectful dialog about this sort of thing. I recognize that some people hate market timing in any form but this part of the forum should be tolerant of such an idea.
In a response I will post a few relevant charts.
|
|
|
|
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!
Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!
You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!
|
08-03-2020, 11:56 AM
|
#2
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,797
|
Here is a 70 year chart showing rolling compound annual returns.
|
|
|
08-03-2020, 01:46 PM
|
#3
|
Thinks s/he gets paid by the post
Join Date: Mar 2012
Posts: 3,925
|
When yields get so low, if you have a low risk way to pick up some return then I say go for it. You'll never know unless you try, and with the way the markets are today, along with interest rates, you have very little to lose.
|
|
|
08-03-2020, 02:06 PM
|
#4
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Feb 2004
Location: Portland, Oregon
Posts: 7,107
|
I am using dividend paying stocks in lieu of bonds or CDs. Pick carefully for a strong balance sheet. I am looking to pick up Digital Realty Trust, JnJ, and more Kimberly-Clark.
Dividends for these firms are low by historic standards but there is also the opportunity for capital appreciation.
__________________
Duck bjorn.
|
|
|
08-03-2020, 02:51 PM
|
#5
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,204
|
I have some money in SWAN as an alternative. The underlying investments are ~90% 10-year treasuries, ~5% 6-month ITM SPY calls and ~5% 12-month ITM SPY calls.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
|
|
|
08-03-2020, 04:24 PM
|
#6
|
Thinks s/he gets paid by the post
Join Date: Aug 2007
Posts: 2,852
|
I'm using dividend stocks to replace some of my bond allocation. It's a mix of individual stocks along with SCHD to keep it simple. I'm ok with the extra volatility.
__________________
Eat, Drink and Be Merry.
|
|
|
08-03-2020, 05:58 PM
|
#7
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,797
|
I took a brief look at high dividend yield funds and they seem to have fallen about as much as the sp500 in declines like 2008-2009 and in this year's decline.
What I want to eliminate is the deep dive characteristics of stocks that can take years to work out. I'm not saying I can get the volatility down to bond volatility though. Also I might not be able to eliminate the possibility of an October 1987 surprise -20% decline.
|
|
|
08-03-2020, 07:10 PM
|
#8
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2003
Posts: 18,085
|
I use MERFX and to a lesser extent ARBFX as stand in for part of the bond portfolio. These are merger arbitrage funds that typically seek to earn 200 to 400BP over LIBOR after expenses with low volatility. In capital markets crashes they will slide a bit but generally recover quickly.
__________________
"All animals are equal, but some animals are more equal than others."
- George Orwell
Ezekiel 23:20
|
|
|
08-03-2020, 10:12 PM
|
#9
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,515
|
Quote:
Originally Posted by brewer12345
I use MERFX and to a lesser extent ARBFX as stand in for part of the bond portfolio. These are merger arbitrage funds that typically seek to earn 200 to 400BP over LIBOR after expenses with low volatility. In capital markets crashes they will slide a bit but generally recover quickly.
|
I have looked at MERFX a few times but it sure did fall a lot in the selloff.
Trouble with pretty much any equity, really, and all but highest quality bonds.
|
|
|
08-03-2020, 10:13 PM
|
#10
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2016
Location: Northern Virginia
Posts: 7,515
|
Seems like an interesting idea.
|
|
|
08-04-2020, 01:42 PM
|
#11
|
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2006
Location: west coast, hi there!
Posts: 8,797
|
Here is a 70 year plot of one particular SMA method versus Treasuries and buy-hold equities. The red "SMA trade" signal has one trade out of the SP500 when it is low. The blue triangles "final trade outcome" show how that trade did when the SMA trade signal goes high. The blue triangles use the right most Y-axis.
There were 6 trades since 2009 with 5 whipsaws. The worst of those whipsaws was a 7.8% loss to buy-hold. But again, I am comparing this method to bonds represented here by intermediate Treasuries.
|
|
|
08-04-2020, 07:28 PM
|
#12
|
Full time employment: Posting here.
Join Date: Mar 2010
Posts: 889
|
I like covered call ETFs/CEFs for replacing bond income.
ETFs = QYLD, HSPX
CEFs = QQQX, SPXX, STK
If I was braver I'd also use options for replacing the counterbalancing aspects of bonds vs equities as well. You should be able to use options to zig when equities zag. No need to use bonds for that.
|
|
|
|
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
|
|
Thread Tools |
|
Display Modes |
Linear Mode
|
Posting Rules
|
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts
HTML code is Off
|
|
|
|
» Recent Threads
|
|
|
|
|
|
|
|
|
|
|
|
|
» Quick Links
|
|
|