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Old 08-30-2010, 09:43 PM
 
Location: it depends
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How in the world can anybody look at the stampede of the last two years into bonds, and jump into a 25% allocation to treasuries? Roughly speaking, a continuation of the long-term track record requires that interest rates continue to decline to zero and then go negative. This seems highly unlikely, to say the least. Another way of looking at it is to say that long term treasuries have ranged between 3% and 16% over the last 30 years, and currently sit at 3%. That rates will rise from this point, and have very little room to fall, seems obvious.

In 1982, T-bonds were known as certificates of confiscation since they had lost half their value in just a few years. A 7% bond was not worth much in a 15% world; today's 3% bonds won't be worth much in a 6% world.

Gold presents a similar situation, although one's decision has to be a lot more subjective.

With cash at zero-point-nothing, three legs of this four-legged stool seem tremendously weak at the present time.

I do like the forced "buy low, sell high" aspect of rebalancing, which would have had you adding money to treasuries at the highest yields in history back in 1982 even though you got nailed on the treasury quarter to get to that point.
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Old 08-31-2010, 03:01 AM
 
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Quote:
Originally Posted by marcopolo View Post
How in the world can anybody look at the stampede of the last two years into bonds, and jump into a 25% allocation to treasuries? Roughly speaking, a continuation of the long-term track record requires that interest rates continue to decline to zero and then go negative. This seems highly unlikely, to say the least. Another way of looking at it is to say that long term treasuries have ranged between 3% and 16% over the last 30 years, and currently sit at 3%. That rates will rise from this point, and have very little room to fall, seems obvious.

In 1982, T-bonds were known as certificates of confiscation since they had lost half their value in just a few years. A 7% bond was not worth much in a 15% world; today's 3% bonds won't be worth much in a 6% world.

Gold presents a similar situation, although one's decision has to be a lot more subjective.

With cash at zero-point-nothing, three legs of this four-legged stool seem tremendously weak at the present time.

I do like the forced "buy low, sell high" aspect of rebalancing, which would have had you adding money to treasuries at the highest yields in history back in 1982 even though you got nailed on the treasury quarter to get to that point.
this is a capital preservation portfolio not designed for big gains. its designed to never devastate you by any economic scenerio playing out.

its all part of the protection..even if you bought the asset class at the peak years rebalancing over time will,make it okay..

like i said even if you bought the gold at 1000 bucks back in the 80,s with rebalancing you ran a compounded average return of 9.2% today vs doing the samething with the s&p 500 and getting 9.8% today.

2008 saw every talking head shunning bonds . no one wanted to be in bonds at those low rates..then out of the blue disaster struck and even from those levels long term treasuries soared 30% much to everyones disbelief..
its not about what you think will be the next bubble or asset class to shine with this portfolio..thats for your variable portfolio you may want to keep .

the permanent one always has these asset classes flying fighter cover whether you think its going to play out or not.

there isnt any asset classes that at any given time dosent look like the real loosers of tomorrow.. but thats okay as most times loosers at their worst only fall around 50%.. winners can rise endlessly over time and thats what makes it work. re-balance whenever there is a 20% spread in asset classes or at least once a year,whatever you prefer..over time you will forget you even bought that asset class origionally at the wrong price . while 3 of the asset classes look like there is little potential its not about what things look like now, its how things evolve and play out long term.

even today watch the action in TLT on the days of those big stock market drops as it rises 1 to 2% even at these low interest rates in a single afternoon cushioning the drop in equities or sometime surpassing it..

one reason the permanent portfolio concept did so well over 40 years is because it takes out of the equation what we think....

Last edited by mathjak107; 08-31-2010 at 04:20 AM..
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Old 08-31-2010, 04:11 AM
 
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robyn the whole idea of the buckets is that your portfolio will never take the hit in the early years as there is at least a 15 year time frame before any equites gets sold at a potential loss and the odds of that are pretty slim(we hope).

a bigger concern is that all though the buckets are designed to be self depleating it does take more cash in bucket 1 and more bonds in bucket 2 to carry you over because rates are so low...

we could adjust our withdrawls downward and still make it work as is or we will just save a little more over the next few years.

either way rates have no where really to go but up so this drop in rates may not be a long term issue anyway.
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Old 08-31-2010, 11:28 AM
 
Location: Ponte Vedra Beach FL
14,617 posts, read 19,261,844 times
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Quote:
Originally Posted by mathjak107 View Post
we have an hsa now..we can put 7200.00 a year in it... insurance is about 4000.00 a year for both of us with a 5200 deductable max.

still far cheaper then the 10k for regular insurance.

after the 5200 everything is covered and no co-pays.
That's a great deal on insurance. I pay about $5500/year for myself - with a $10k deductible and a max $3k co-pay. It's a PPO - but one with a generous network (e.g., includes Mayo).

Is it a group policy? Or inexpensive because of state regs? There are some things that are inexpensive in Florida - but insurance isn't one of them. Robyn
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Old 08-31-2010, 11:29 AM
 
Location: Ponte Vedra Beach FL
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Originally Posted by DowntownVentura View Post
Robyn, mathjak, just wanted to let you know I enjoyed reading this thread with comments from both sides. Reps to both
Thank you . Robyn
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Old 08-31-2010, 12:02 PM
 
Location: Ponte Vedra Beach FL
14,617 posts, read 19,261,844 times
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Quote:
Originally Posted by marcopolo View Post
How in the world can anybody look at the stampede of the last two years into bonds, and jump into a 25% allocation to treasuries? Roughly speaking, a continuation of the long-term track record requires that interest rates continue to decline to zero and then go negative. This seems highly unlikely, to say the least. Another way of looking at it is to say that long term treasuries have ranged between 3% and 16% over the last 30 years, and currently sit at 3%. That rates will rise from this point, and have very little room to fall, seems obvious.

In 1982, T-bonds were known as certificates of confiscation since they had lost half their value in just a few years. A 7% bond was not worth much in a 15% world; today's 3% bonds won't be worth much in a 6% world.

Gold presents a similar situation, although one's decision has to be a lot more subjective.

With cash at zero-point-nothing, three legs of this four-legged stool seem tremendously weak at the present time.

I do like the forced "buy low, sell high" aspect of rebalancing, which would have had you adding money to treasuries at the highest yields in history back in 1982 even though you got nailed on the treasury quarter to get to that point.
I've been pretty much 90%+ in bonds for 30+ years now - so I'm not a Johnny Come Lately to the bond party. I do share the concern you expressed for a few reasons. First - one good thing about owning individual high quality bonds with little or no credit quality risk is your return is fixed. You buy a bond yielding 5% - you get 5%. The other is that individual bonds have a fixed maturity date. You buy a 10 year bond - it may go up or down - but you'll get all your money back in 10 years. I've watched the prices of some bonds I own go down a ton at certain times - like in the early 80's - or in 2008. But have always held until maturity unless I had concerns about credit quality (for example - I used to buy a lot of corporate bonds - but sold certain issues - like Ford and GM - when their ratings fell a fair amount below their original AAA ratings - this was a long time ago ).

A bond fund has neither of these desireable characteristics. There is no fixed return - and no maturity date. With very liquid bonds - like treasuries - there is simply no reason why any but the smallest investor should be buying a bond fund instead of individual bonds. And even people with less than large portfolios can put together a decent portfolio of munis these days using on-line brokerage firms (munis aren't especially liquid - they should be buy and hold investments IMO). One nice thing about bonds maturing is one can reinvest money at different times. I'm sure most of you have heard of a bond ladder. Well I don't buy equal amounts of bonds every year (there are times when yields are better - and times when they're worse) - but - buying over time - I have more or less wound up with a bond ladder with somewhat uneven rungs.

Now I do a lot of different types of bonds - and all of my general rules have exceptions. For example - I'll use bond funds for junk bonds. Because I don't want to pick individual junk bonds - and because an ETF like JNK is much more liquid than any bond I would buy on my own. And I'm continuing to hold longer term STRIPS that I bought quite a while ago - even though they're currently at nosebleed levels. The reason I do these things is I trade junk bonds and STRIPS - not short term trading - but I do trade (use charts). So I want liquidity - and I'm willing to ignore the yields to maturity on the STRIPS as long as the price trends are positive.

But would I put 25% of my money in the TLT today - only planning to rebalance holdings at the end of every year? No. I might do the TLT as a trade - but that's about it. Robyn
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Old 08-31-2010, 12:14 PM
 
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treasurey bond funds work well ...because credit risk isnt a factor you can pretty much run with the duration figure on the fund and as long as you spend that much time in it you should get close to a individual bonds value.

for those that dont understand duration it means this, numbers are only for illustration:

you buy a treasury bond fund for 10 bucks a share and 5% interest.

rates rise 1% so your funds share value falls to 9.50 or 5% in value, but your now getting 6% on the new bonds the fund is buying...

if the duration factor is 5 years then you are getting that extra 1% in interest for 5 years making up the 5% drop in principal bringing you back to your origional deal of 5% interest....

it works out fairly close.. with ETF'S LIKE TLT you may do better then individual bonds or worse as they can trade at a discount or premuim to the bonds they actually hold.


if i wasnt doing the permanent portfolio in its entirety i wouldnt buy the long treasury bonds today out of context... they are an important part of the protection of that package

but out of the package they can be a wild speculation. same thing with gold. i would never put 25% into gold, unless accompanied by all the other parts that temper its swings and volatility as well as its sensitivity to only certain economic outcomes. you cant pull out the individual parts and choose what you think is a good deal ,you will end up with a bunch of speculations that count only on certain economic outcomes..... you either take the 4 part package or your back to betting on what you think will happen rather then profiting on whatever happens.


robynn you are a great source of information and insight........... i enjoy how you question things in a very rationale fact filled manor instead of shooting from the hip like most of the discussions in these forums..

Last edited by mathjak107; 08-31-2010 at 12:29 PM..
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Old 09-03-2010, 04:17 PM
 
Location: Ponte Vedra Beach FL
14,617 posts, read 19,261,844 times
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Yes - I'm a pretty rational person. And very well versed in bonds and some other areas (like tax and estate planning). FWIW - I've been a named and unnamed press source in the bond area for over 20 years now. Different people - different publications - met them different ways. It has always been a pretty lonely area until recently. And now I wish all the bond newcomers would go home to stocks so interest rates go up again (I'll even take where they were earlier this year - when the long bond was yielding close to 5%) . Robyn
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Old 09-03-2010, 04:32 PM
 
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same here,as far as publications. marilyn and i were featured in money magazine, fidelity investments had a story on us in their investment magazine,and i serve as a non staff consultant for one of the writers at the wall street journal... i consider it a big deal because i have never worked in the field .

ooopss i did, part time i answered the phones and did filing for first investors corp while going to college
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