Poll:All in on Bonds

[Running_Man]

Quote:
Originally Posted by Running_Man
I voted 9 percent, however I would be investing in 30 year treasuries in order to lock in the yield over the remainder of my retirement. At 9 percent I would be able to take 45% of the yield as spend yielding 4 percent of the portfolio and reinvesting the other 55%. In my research investing in this manner for the past 100 years to meet retirement needs has never required selling a treasury bond in the first 30 years of retirement to meet an inflation adjusted annual spend.

Very interesting. What data series did you use for your reinvestment rates?

I used the annual average in the first column of this series as a proxy for 1920 - 1946.

And this website for the times frame 1947 forward. Also used annual CPI from govermental statistics to compare and increase needed withdrawls. My old unupdated spreadsheet and the spreadsheet from my original analysis of this logic is on the bottom link to the earlier thread I started on this topic.

30-year T-bond Yield; copyrighted by Bridge Commodity Research Bureau

http://www.early-retirement.org/forums/f28/fixed-income-strategy-for-beating-inflation-37271.html

 

[FIRE'd@51]

Thanks R_M - nice piece of analysis

 

[Lsbcal]

Wow... over 50% polled would not put 80% of their portfolio in 10 year treasuries if they auctioned with a 15% coupon.

I find that amazing! A 15% coupon would enable one to make a 400+% return in 10 years... with relatively low risk. Buying treasuries directly and holding for 10 years and getting the coupon (or when rates drop grab the gain and go back into stock.... something less than 10 years).
...(snip)...

When 10 year Treasuries hit 15% back in Sept 1981 very few had the guts to buy bonds. That's because real returns are the only thing that matter. As it turned out that was the yield peak but who knew then?

The early 1980's were good for both stocks and bonds. You didn't have to make a long term bond bet to do well as real rates were high throughout the 1980's.

 

[Texas Proud]

When 10 year Treasuries hit 15% back in Sept 1981 very few had the guts to buy bonds. That's because real returns are the only thing that matter. As it turned out that was the yield peak but who knew then?

The early 1980's were good for both stocks and bonds. You didn't have to make a long term bond bet to do well as real rates were high throughout the 1980's.

True... my dad locked in as long as he could 15% CDs... I think they were 5 years... I think that unless there was something that went major wrong.. the gvmt would intervene and 'fix' things in some way between 2 and 5 years.. which would leave you with 5 years to reap the rewards of those high rates....


I would think about going even longer and see if I could get some corporate 30 years...

 

[chinaco]

Not true. If we were to see bond yields like that again it is because the market sees inflation. This is NOT a low risk situation . I agree it is good to plan ahead with what ifs but diversification is the safest strategy that can possibly deal with a long term time frame. The only situation I could forsee being 80% bonds would be if I had way more money than I need for retirement. Even then I would sit at the efficient frontier of 80% bonds:20% equity.

DD

The rates and (definitely the asset mix 20/80) was arbitrary. It is a little polarizing, but that get's the discussion started...

I am glad you commented. It is a bit of an academic discussion with some opinion thrown in.

Which risks? My comment was Treasury relative to stock (asset class).

Inflation risk is the thing that would trigger the rise in interest rate... But due to the longer-term nature of bonds and the guarantee against principle... it can create an opportunity (at a low relative risk). Of course, it would all depends on the health of country for the longer term... not a shorter-term turn of events.

BTW - I believe in MPT. I stick to it mostly because I do not believe I have superior knowledge or capability (compared to the market). But I also know that sometimes unique opportunities present themselves and a small investor can take advantage of it...

... kinda like brewer's move a while back.. jumping on the opportunity he saw probably reduced his risk (asset class) and made him some money.

If inflation kicked up... do you think it is permanent? Moving into Hyperinflation?

Now if you think our govt is going to fail... that presents a bunch of other problems... even for domestic companies. But I think that is a low probability in my life time.

I have read about people that locked in 30 year treasury bonds back in the late 70's and early 80's and made a killing... even though 30 treasury bonds were providing a lower coupon than 10 year notes.


If you believe in the 4% rule (which represents the past) and think it shows a fuzzy picture of the future... 15% would look pretty good.

Whether or not I would go to 20/80 would probably depend on a number of factors. However, I am not an "All-in" type of investor myself. But at 15% I would be buying treasuries directly and probably quite a bit of them. It would be a mix of 10, 20, and yes 30 yr. Because I believe it would be temporary!

 

[foxfirev5]

As mentioned above, the actual nominal rate is only part of the story. However, I never see myself dropping to a 20% or below equity stake. It's all relative

 

[chinaco]

As mentioned above, the actual nominal rate is only part of the story. However, I never see myself dropping to a 20% or below equity stake. It's all relative

Yep... I understand nominal vs real.

It would all come down to whether or not you thought it was temporary... and how one views the trade offs between risk (there are a bunch of risks besides inflation) and reward.