Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I was studying the permanent portfolio that I came across from the poster mathjak.
Although I don't have any money invested in the permanent portfolio manner - I was considering moving one of my accounts around to invest like it.
However, I do not like the idea of buying long term bonds with interest rates so low - as long term bonds tend to be less productive if/when interest rates rise. It seems like buying them now have more risk than reward -- of course for all I know, we could be in a long term low interest rate run like Japan.
I was studying the permanent portfolio that I came across from the poster mathjak.
Although I don't have any money invested in the permanent portfolio manner - I was considering moving one of my accounts around to invest like it.
However, I do not like the idea of buying long term bonds with interest rates so low - as long term bonds tend to be less productive if/when interest rates rise. It seems like buying them now have more risk than reward -- of course for all I know, we could be in a long term low interest rate run like Japan.
Any opinions on long term US government bonds?
The expected return is very small. The point is to diversify your assets to limit losses if one asset class performs poorly. That said, having the "traditional" bond allocation is indeed probably excessive in this rate environment.
And it certainly is dumb to buy 20- or 30-year bonds in a taxable account when you have a 30-year mortgage at a higher interest rate...
Here's a good article for you... Don
Bond funds are laddered. Maturing bonds are constantly being replaced by new bonds. If rates go up, bond prices go down, but bond yield (income) goes up. Stay the course and you'll be rewarded.
AGG has a little more volatility than a 3 - 7 year bond fund. Very close.
Intermediate bonds pay almost the same with much less risk.
intermediate bonds have no where near the potential for capital appreciation nor weight to carry a portfolio if you want fighter cover.
the long bond is up 26% this year . the intermediate about 6.50%.
typically on those big down days AGG moves a fraction of a point , the long bond 1-2% is common.
you have to ask yourself the reason you want to own bonds. i think for income they stink.i 5hink if the market falters for stocks the long bond is where the action is for gains.
I USE INTERMEDIATE TERM BONDS MYSELF. since i am no longer doing the permanent portfolio i use them more to just balance the portfolio's volatility.. i also do not marry an asset class. when it's time is over and rates rise that bond money will be deployed in other types of funds depending what the big picture calls for.
The expected return is very small. The point is to diversify your assets to limit losses if one asset class performs poorly. That said, having the "traditional" bond allocation is indeed probably excessive in this rate environment.
And it certainly is dumb to buy 20- or 30-year bonds in a taxable account when you have a 30-year mortgage at a higher interest rate...
dumb? long term treasuries are up 25% this year. in fact for much of the last 15 years they averaged almost 8% total returns. you would have made double the mortgage. we all should have been that dumb.
intermediate bonds have no where near the potential for capital appreciation nor weight to carry a portfolio if you want fighter cover.
the long bond is up 26% this year . the intermediate about 6.50%.
typically on those big down days AGG moves a fraction of a point , the long bond 1-2% is common.
you have to ask yourself the reason you want to own bonds. i think for income they stink.i 5hink if the market falters for stocks the long bond is where the action is for gains.
I USE INTERMEDIATE TERM BONDS MYSELF. since i am no longer doing the permanent portfolio i use them more to just balance the portfolio's volatility.. i also do not marry an asset class. when it's time is over and rates rise that bond money will be deployed in other types of funds depending what the big picture calls for.
Why are you no longer doing the permanent portfolio, if you don't mind?
intermediate bonds have no where near the potential for capital appreciation nor weight to carry a portfolio if you want fighter cover.
........
I am confused and would appreciate a more detailed explanation.
I guess I should also mention that I have never bought an actual bond and the last bond I owned was a US Savings bond with a face value of $100 that I got on my 16th birthday. So when I talk about bonds, I am actually referring to bond funds. In any case, when I look at bond fund performance, I see returns for intermediate funds which are very close to the returns for funds with long maturity bonds. Long term funds seem to have more risk if interest rates increase.
I am also having a hard time seeing the "fighter cover" utility of bonds. Obviously money in bond funds is money not in the stock market. In the past bonds were a great way to diversify for the long term. When the economy reached late cycle, interest rates increased and stocks eventually hit a bear market. We seem no where near an end cycle in the economy. The market may crash but if so that crash will not be related to the typical past cycles where bonds could provide help.
when we talk bonds we talk total return not just what the interest yield is.
If you watch TLT the long treasury bond fund on the days the markets fall big the bond fund will usually rise as much, as the trend has been sell stock and go to long treasury bonds in a flight to safety.
just last week we saw TLT rise as much as stocks fell over and over each day.
it has been repeating that way now for years . 2008 saw TLT soar 45% while equities fell about 40%. 12/18 market is up 225 points ,TLT down 1.25%... for comparison agg is down .25% so you see not much weight either up or down in comparison.....
when one zigs the other zags.
so if protecting against a sell off in stocks is what you want the volatility of long treasury bonds can help you. ytd TLT is up 26%, fidelity Spartan long term treasury is up 25%.
on the other hand if rates rise the fund will take an nav hit. however since in a bond fund bonds are always maturing and being replaced older bonds get replaced with new bonds paying that higher rate.
since treasuries have just about zero credit risk they track rates exactly.
just as if you held multiple individual bonds there will be an average maturity date somewhere between older ones and newer ones. as long as you stay put at least that amount of years the higher rate of interest will offset the fall in nav and you will be back to your original deal good or bad.
unless I wanted to offset those with gold or an inflation hedge I would not use them once rates rise.
the intermediate bonds are good for just offsetting some volatility of the portfolio if that is what you want and are not interested in actually profiting in a down market with stocks like you could with the long treasury bond.
if I was happy with the volatility of my 50/50 mix and felt rates would rise and I did not want to own bonds and used cash instead I would have to commit a bigger percentage of my stock money to cash to hold the same volatility I had with bonds.
bonds have the ability to go up if stocks fall so I would need less allocation to bonds than cash to keep the same volatility.
the extra money I could allocate to stocks by using bonds instead of cash should offset any drop in nav if rates rise when the stock market goes up.
if you are not interested in controlling volatility at all than perhaps you do not really want any bonds. If rates rise use cash and equities.
many times I just speculate with TLT . I have the interest rate floor and if some event tanks the markets and we get a move down in stocks I will sell TLT ,REAP A GAIN AND REPEAT WHEN OPPORTUNITY SHOWS AGAIN.
if I guessed wrong I use a stop loss and just get sold out.
my hit record has been pretty good buying TLT after a strong week in stocks when tlt falls and sell it during a down week when tlt is usually up.
I think I bought and sold tlt 10- 15x this year. each time picking a few points since it is so volatile.
.
Last edited by mathjak107; 12-18-2014 at 08:02 AM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
