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Thanks for the replies all! It definitely depends on whether the bonds are purchased outright or if it's through a secondary market ETF. Thanks for elucidating that hikernut! In function then, it seems like TLT price then is 1. Interest rate
Quote:
Originally Posted by hikernut
Troubled in what sense? Just because the prices have dropped? Or because the day that Treasury holders do not get paid is not far away?
If the latter were to happen, the entire world economy is at risk. If you think that's a real possibility you should sell all of your financial assets. The proverbial allocation of guns, gold, and canned goods would be more appropriate.
I don't think default is a likely scenario, but I could see choppy waters, ie another downgrade, not being out of the question due to deficit spending. They'd get their stuff together and do tax increases to straighten the ship, but could be painful. And for that, I'd rather be a equity than bond holder. That scenario is much more likely now than pre Covid. That's a long term risk to deficit fueled recovery.
On the other hand, if things hit a stump and the economy slacks, then bonds would be the place to be cause rates will drop before spending increases.
Bottom line is does the bond / stock portfolio now make sense that rates have normalized, or is it still a weird sort of the old won't work for the new paradigm?
Bottom line is does the bond / stock portfolio now make sense that rates have normalized, or is it still a weird sort of the old won't work for the new paradigm?
My opinion is yes, today it's fine to follow the conventional allocation advice, whatever is appropriate for your age and risk tolerance.
as a comparison between using the barbell made up of tlt and sgov , which is a short term cash instrument fund , i compared a bond budget split 50/50 between long term bonds and sgov or cash instruments with an intermediate term treasury bond fund ,IEF .
STARTING IN 2020
10k in the barbell in june 2020 is 7762 with interest today
100% in the intermediate term bond fund ief is 7751.
so when used the way long term treasuries are in most portfolios that use them they really are no worse then an intermediate term term bond fund with no cash instruments and barbel used.
in fact using a mix of an index stock fund and a total bond fund would have done the same as an index stock fund and a barbell of tlt and cash instruments .
so it is always better to look at the entire portfolio as a whole and see how it works with each other as opposed to trying to see how the sausage a made by ripping out the various components in isolation.
in both the permanent portfolio and the golden butterfly the long term bonds have no more interest rate sensitivity then an intermediate term bond fund would have
Last edited by mathjak107; 11-09-2023 at 03:03 AM..
Yeah, nobody knows. This past January I had a meeting with my Fidelity rep. He mentioned a couple of times to "not be afraid to buy bonds". Well, TLT dropped another 20% after that comment, haha.
Real yields have been in the 2%-2.5% range for the past couple of months. That's not bad for fixed income. Could they go higher? I suppose, but real yields have rarely been above 3% for long. Most of the damage in bonds is done now, IMO. As of late September I've got my entire bond allocation put to work in a range of maturities.
The bigger question, for some anyway, is if bond yields are going to drop significantly in the future. I'm doubtful. Interest rates are now back to the range they were in before the Great Recession (2008-2009). I expect the past 15 years were an anomaly that won't be repeated. But again... nobody knows.
Do you buy only treasuries, or do you invest in other types of bonds?
Do you buy only treasuries, or do you invest in other types of bonds?
Today my bond allocation is almost entirely in Treasuries. I’ve also got an agency bond that matures in a couple of years, at which point that money will likely go into Treasures as well.
I don't think default is a likely scenario, but I could see choppy waters, ie another downgrade, not being out of the question due to deficit spending. They'd get their stuff together and do tax increases to straighten the ship, but could be painful.
Treasuries won't default.
Or I should say, if US Treasuries default, your bond portfolio is the least of your problems.
for those looking to leave the shelter of treasuries or diversify away , i like a very unique fund , fidelity floating rate high yield ffrhx
it is yielding over 9% and has little interest rate risk since it is very very short duration and rates float . duration is .26 years …so that is very short , high interest .
i recently started a fairly large position in it to take advantage of the rates now .
another less sensitive fund i like is fidelity fthrx ,intermediate bond fund with a duration of just
3.71 years and only 20% in BBB.
with a recession seeming to be farther out on the horizon i brought down the butterfly holdings a bit yesterday for more conventional holdings of equal allocation
Last edited by mathjak107; 11-11-2023 at 08:06 AM..
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