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Re: Initial SEC yield and subsequent 5yr and 10yr returns

grayfox wrote: We all know that if you hold a bond to maturity, the return is the Yield-to-Maturity YTM. Not exactly. This is only true for a zero-coupon bond. For coupon bonds, the realized return will depend on coupon reinvestment rate as well. Kevin, you are being very loose with your definition...
by Doc
Wed Jan 28, 2015 6:10 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Initial SEC yield and subsequent 5yr and 10yr returns

BTW, as of today VFITX has SEC Yield = 1.30% and Duration = 5.2 years. The 5 year Treasury has yield 1.61% Penfed has a 5-year CD with APY = 1.61% Bankrate.com shows a 2.32% 5-year Jumbo CD at CIT Bank. For a 5-year holding period, which would you choose? Now have VFITX (actually admiral class) SEC...
by Doc
Wed Jan 28, 2015 1:05 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Mixed treasury mutual fund

On T Notes v T Bonds. If, at issue, a bond has more than 10 years to maturity it is a T Bond. Otherwise it is a Treasury Note. There's no distinction other than that , a security with 7 years to maturity now can be either a T Note or a T Bond. The note/bond thing always bugged me so I tried to find...
by Doc
Wed Jan 28, 2015 10:43 am
 
Forum: Investing - Theory, News & General
Topic: Mixed treasury mutual fund
Replies: 10
Views: 707

Re: What mutual fund companies do you use?

Allianz, Artisan, Fidelity, Harbor, Pimco, Schwab, T. Rowe Price, Tweedy Browne, Vanguard and Doc's Own TIPS Fund. All chosen based on 1) portfolio construction, 2) low cost in category, 3) manager/index tenure and 4) consistent average or above average risk adjusted performance over 3, 5 and 10 yea...
by Doc
Wed Jan 28, 2015 9:56 am
 
Forum: Investing - Theory, News & General
Topic: What mutual fund companies do you use?
Replies: 54
Views: 1982

Re: Why not invest in bond fund in taxable account?

Landy, Under that scenario, what happens if the market crashes when I need the money? I'm out of luck, it seems. How would new contributions be invested? I wouldn't want to invest new money at 73/27. 100% equities, as my short and intermediate term needs are already covered? You sell the short/inte...
by Doc
Sun Jan 25, 2015 2:28 pm
 
Forum: Investing - Theory, News & General
Topic: Why not invest in bond fund in taxable account?
Replies: 23
Views: 2642

Re: Why not invest in bond fund in taxable account?

For #1, when you say overall risk level, you mean with my non-retirement money, correct? I want to take a lot of risk with retirement money that I won't touch for decades, but not with money I'll need in say, 10 years or less. Landy already answered the question. Saved money doesn't care what it is...
by Doc
Sun Jan 25, 2015 11:28 am
 
Forum: Investing - Theory, News & General
Topic: Why not invest in bond fund in taxable account?
Replies: 23
Views: 2642

Re: Initial SEC yield and subsequent 5yr and 10yr returns

Doc, I understand the concepts of amortization and accretion. I know that amortizing a premium reduces the distributable income from a fixed income instrument . My comments were directed to an academic type who has little understanding of mutual fund accounting and, apparently, believes that a 4% c...
by Doc
Sun Jan 25, 2015 10:48 am
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Initial SEC yield and subsequent 5yr and 10yr returns

Correct me if I'm wrong, but premiums on bonds are amortized over the remaining life of the bonds held by a mutual fund aren't they? If that's the case how does the amortized yield result in a higher distribution yield than for a par bond? Doesn't the process of amortizing a premium put the distrib...
by Doc
Sat Jan 24, 2015 8:41 am
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Initial SEC yield and subsequent 5yr and 10yr returns

Since YTM and SEC Yield both explicitly assume distributions are reinvested , neither of those metrics are useful to me. I essentially keep two ledgers, if you will. That's a popular believe and it is dead wrong. The YTM is the interest or discount rate that makes the sum of all the discounted cash...
by Doc
Fri Jan 23, 2015 5:28 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Poll: What Percent of TIPS in Taxable Account

TreasuryDirect also provides a 1099-OID, so that part is simple. There is an adjustment you can claim on Schedule B for "Amortized Bond Premium" if you paid over par for any bonds (like the auctions at negative rates), and that you need to calculate yourself. The ABP part went "live&...
by Doc
Thu Jan 22, 2015 12:40 pm
 
Forum: Investing - Theory, News & General
Topic: Poll: What Percent of TIPS in Taxable Account
Replies: 27
Views: 1664

Re: Poll: What Percent of TIPS in Taxable Account

Don't you have to recalculate each year the principal appreciation and declare it as interest? Seems like a major PIA to have to recalculate it, especially if you are holding it in a Treasury Direct account. Not a PIA. You get a 1099-OID from your broker. I would assume that Treasury Direct also ha...
by Doc
Thu Jan 22, 2015 11:24 am
 
Forum: Investing - Theory, News & General
Topic: Poll: What Percent of TIPS in Taxable Account
Replies: 27
Views: 1664

Re: "Vanguard converting mutual fund accounts to brokerage?

Doc, Sorry to hear of your problems. Wife and I converted in Dec. several accounts and although maybe not as complex as yours we had our odd ball requirements. A creative solution proposed by our rep solved that.: then again she is the ultimate Flagship Rep. Young, professional,knowledgeable,articu...
by Doc
Wed Jan 21, 2015 8:39 pm
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 300
Views: 30298

Re: Initial SEC yield and subsequent 5yr and 10yr returns

If someone makes the "will earn" statement, it's now easy to show them some data that proves that it is not the case. This may be useful to anyone who is looking for certainty in the nominal 5-year or 10-year return of an investment they are making now If one wants some guarantee that the...
by Doc
Wed Jan 21, 2015 6:08 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Adjusted Closing Price

Kevin, yes, morning star only gives the last few dividends for free, but they do list just about every new one on the day they are declared Huh? http://s7.postimg.org/eb0aoeynf/Capture.png http://quotes.morningstar.com/chart/fund/chart?t=VBMFX&region=usa&culture=en-US See all the little blu...
by Doc
Wed Jan 21, 2015 5:51 pm
 
Forum: Investing - Theory, News & General
Topic: Adjusted Closing Price
Replies: 29
Views: 1337

Re: Adjusted Closing Price

Is this what you are looking for? http://s18.postimg.org/mhj1dbt49/Capture.png http://quotes.morningstar.com/chart/fund/chart?t=TRMCX&region=usa&culture=en-US&dataParams=%7B%22zoomKey%22%3A4%2C%22version%22%3A%22US%22%2C%22showNav%22%3Atrue%2C%22defaultShowName%22%3A%22name%22%2C%22mainS...
by Doc
Wed Jan 21, 2015 2:05 pm
 
Forum: Investing - Theory, News & General
Topic: Adjusted Closing Price
Replies: 29
Views: 1337

1099's

Be aware: Reinvested dividends on bond funds that accrue daily are showing up on the "old" mutual fund account 1099-DIV with the same date as the "transfer date". I had them in the "new" account. This might be an artifact of the "late" downloads to Quicken tha...
by Doc
Wed Jan 21, 2015 1:53 pm
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 300
Views: 30298

Re: Poll: What Percent of TIPS in Taxable Account

I answered 80% but that's only because I only had money in tax-advantaged and was unable to buy in taxable when they went on sale in '08/'09. As with all US Treasury securities no state or city income tax is due on individual TIPS or TIPS funds held in a taxable account. For example, one might want ...
by Doc
Tue Jan 20, 2015 1:22 pm
 
Forum: Investing - Theory, News & General
Topic: Poll: What Percent of TIPS in Taxable Account
Replies: 27
Views: 1664

Re: Which of 7 cost-basis methods? (Poll)

LGUT is likely the optimized SLID approach many would go for; however, what if you don't like what the broker has picked for you can you do a one-time override? Yes well sort of, maybe, sometimes. In theory you can change your cost basis method up to the settlement date. (Not sure whether that mean...
by Doc
Tue Jan 20, 2015 12:58 pm
 
Forum: Investing - Theory, News & General
Topic: Which of 7 cost-basis methods? (Poll)
Replies: 11
Views: 876

Re: CD APY vs. Treasury YTM since late 2010

I agree with some of this, but not all. The main source of confusion is conflating present value and price for a direct CD, so it depends entirely on how you define "price". Yes, I can calculate PV for the CD. No, that does not give me the price, because I define price as what I can actua...
by Doc
Mon Jan 19, 2015 10:04 am
 
Forum: Investing - Theory, News & General
Topic: CD APY vs. Treasury YTM since late 2010
Replies: 28
Views: 1829

Re: Initial SEC yield and subsequent 5yr and 10yr returns

I think it is important if we are trying to assess the degree to which YTM (or SEC yield) explains future bond returns. Despite the back and forth debate in this thread, I think all agree that YTM does explain a large component of future returns - seem to be arguing degree. Thinking out loud. Durat...
by Doc
Mon Jan 19, 2015 9:34 am
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: CD APY vs. Treasury YTM since late 2010

But cash flow between what and what? I still think it's useful to think about this. Cash flows have a positive or negative sign depending on the direction of the flow. The fact that there is a direction implies that cash is flowing between two things. The problem with applying discounted cash flow ...
by Doc
Sun Jan 18, 2015 6:46 pm
 
Forum: Investing - Theory, News & General
Topic: CD APY vs. Treasury YTM since late 2010
Replies: 28
Views: 1829

Re: Initial SEC yield and subsequent 5yr and 10yr returns

billyt wrote: Over the 10 years, your returns will be similar to the initial SEC yield, that is the bottom line.

The current SEC Yield for Vanguard Total Bond Market 1.87% (Morningstar). Do you really believe that the average return on TBM will be close to 1.87% over the next ten years?
by Doc
Sun Jan 18, 2015 6:17 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Tilting to Corp. Bonds

That downwards bump doesn't mean much to a disciplined investor UNLESS he has to sell IT IG during that period. I happen to hold an allocation to IT IG in my IRA. "That downwards bump doesn't mean much to a disciplined investor UNLESS he has wants to sell IT IG during that period." Wants ...
by Doc
Sun Jan 18, 2015 2:25 pm
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: CD APY vs. Treasury YTM since late 2010

There actually are two cash flows from each reinvested coupon: one positive and one negative. They do net to 0, so if the equal positive and negative cash flows occur on the same day and from/to the same instrument, then yes, for discounted cash flow calculations with respect to that instrument, we...
by Doc
Sun Jan 18, 2015 2:20 pm
 
Forum: Investing - Theory, News & General
Topic: CD APY vs. Treasury YTM since late 2010
Replies: 28
Views: 1829

Re: Initial SEC yield and subsequent 5yr and 10yr returns

The SEC yield is forward looking. Bonds have a fixed face value and a fixed return. It doesn't take a rocket scientist to figure out their value or forward return. Bond desks trade these things furiously in an attempt to gain an advantage based on predictions of future interest rates. None of this ...
by Doc
Sun Jan 18, 2015 2:01 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Initial SEC yield and subsequent 5yr and 10yr returns

No caveat needed. The historical record clearly shows that in spite of constantly changing interest rates and yield curves, the initial SEC yield is predicts the subsequent 10 year yield with a good degree of accuracy. I just don't know what a backwards looking predictor tells me of value. Should I...
by Doc
Sun Jan 18, 2015 12:40 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Initial SEC yield and subsequent 5yr and 10yr returns

And the SEC yield is simply a standardize way for expressing the current yield. Now I'm really confused. Current yield is a dead easy calculation, why would it need standardization ? My understanding is the SEC is a standardization to eliminate the need/desire to come to erroneous conclusions when ...
by Doc
Sun Jan 18, 2015 12:25 pm
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: CD APY vs. Treasury YTM since late 2010

Conversely, if the 5-year rate falls by 1%, you can't sell the direct CD at a profit (not that you'd want to). I would want to 1) for tax arbitrage (convert ordinary income into LTCG) 2) to buy equities or cheap TIPS in the next financial/deflation crisis 3) to buy a faster computer so that I can k...
by Doc
Sun Jan 18, 2015 10:37 am
 
Forum: Investing - Theory, News & General
Topic: CD APY vs. Treasury YTM since late 2010
Replies: 28
Views: 1829

Re: CD APY vs. Treasury YTM since late 2010

Look at the PRICE, YIELD, and DURATION formulas. Do you see a parameter in any of them related to whether or not interest is reinvested? No. In the DURATION formula there are rate and yield parameters. The rate is the coupon rate. The coupon rate of a direct CD is not 0%. The coupon rate of a zero-...
by Doc
Sun Jan 18, 2015 10:31 am
 
Forum: Investing - Theory, News & General
Topic: CD APY vs. Treasury YTM since late 2010
Replies: 28
Views: 1829

Re: Initial SEC yield and subsequent 5yr and 10yr returns

dkturner: You are misinformed. SEC yield is a very accurate predictor of subsequent 10 year return. No. For the SEC yield to be a good predictor of subsequent returns one has to assume that the yield curve is static. The yield curve is of course not static. To paraphrase Larry Swedroe: "The cu...
by Doc
Sun Jan 18, 2015 9:55 am
 
Forum: Investing - Theory, News & General
Topic: Initial SEC yield and subsequent 5yr and 10yr returns
Replies: 118
Views: 5692

Re: Tilting to Corp. Bonds

Investors are more likely to tilt to corporates when the percentage difference in yields is much greater, irrespective of the difference in spreads. That is a good argument but I don't think it is a good metric for defining the difference between two assets. I also don't know how widespread the arg...
by Doc
Sun Jan 18, 2015 9:42 am
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Tilting to Corp. Bonds

In June of 2007 the spread between 5 year Treasuries and Baa corporates was only 167 basis points. ... The corporate yield was 33% higher than the treasury yield. Nothing to get excited about. I submit that if you view yield differences in percentages, as opposed to basis points or percentage point...
by Doc
Sat Jan 17, 2015 6:21 pm
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Poll: Your Max. REIT Allocation

chabil wrote:how does one isolate the REITS in these funds and how does one know what percentage is held?


Morningstar portfolio tab:

http://portfolios.morningstar.com/fund/ ... ture=en-US

For example Vanguard Tax-Managed Small Cap Adm VTMSX
by Doc
Sat Jan 17, 2015 1:45 pm
 
Forum: Investing - Theory, News & General
Topic: Poll: Your Max. REIT Allocation
Replies: 54
Views: 4016

Re: Poll: Your Max. REIT Allocation

10% of equities in a dedicated fund. I didn't vote because a % of total portfolio makes no sense to me and it would be misleading since we are very fixed income heavy compared to most people here..
by Doc
Sat Jan 17, 2015 1:19 pm
 
Forum: Investing - Theory, News & General
Topic: Poll: Your Max. REIT Allocation
Replies: 54
Views: 4016

Re: Tilting to Corp. Bonds

I like Total Bond, the blue line. I like the red line - iShares Interm Government/Credit Bd GVI http://quotes.morningstar.com/chart/fund/chart?t=VBTIX&region=usa&culture=en-US&dataParams=%7B%22zoomKey%22%3A11%2C%22version%22%3A%22US%22%2C%22showNav%22%3Atrue%2C%22defaultShowName%22%3A%2...
by Doc
Sat Jan 17, 2015 1:09 pm
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Tilting to Corp. Bonds

BlueEars wrote:BTW, is there a nice source for intermediate corporate bonds, i.e. around 5 years?

A few: VICSX,VCIT,VFIDX,VFICX,VBILX,BIV,CIU,ITR ... :D
by Doc
Sat Jan 17, 2015 11:40 am
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Tilting to Corp. Bonds

I wonder how that spread chart might change using the 30 year constant maturity? The St Louis Fed charts (FRED) have lots of data but there are probably only a very few corporate 30's available so I don't know if there is any 30 year corporate indexes. http://research.stlouisfed.org/fred2/categorie...
by Doc
Sat Jan 17, 2015 11:29 am
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Tilting to Corp. Bonds

Does anyone think that Fed participation in the Treasury market may have been distorting the relationship between the relative yields of Treasury and investment grade corporate bonds? The credit spread doesn't look like it correlates with the Fed action as such except in the early part of the actio...
by Doc
Sat Jan 17, 2015 10:57 am
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Tilting to Corp. Bonds

Does anyone have any thoughts about the unusual situation we have been in since 2009 with respect to the Federal Reserve Board's participation in the market for Treasury securities? Does anyone think that Fed participation in the Treasury market may have been distorting the relationship between the...
by Doc
Sat Jan 17, 2015 9:14 am
 
Forum: Investing - Theory, News & General
Topic: Tilting to Corp. Bonds
Replies: 36
Views: 2919

Re: Tax location spreadsheet & question

richard wrote:That's the traditional answer, but it does not appear to be currently the case.

I "yield" to someone else on this issue. :D
by Doc
Thu Jan 15, 2015 11:05 am
 
Forum: Investing - Theory, News & General
Topic: Tax location spreadsheet & question
Replies: 17
Views: 1280

Re: Tax location spreadsheet & question

Fair enough, but in-state munis are as tax efficient as you can get. Not really. David Grabiner postulates that you have to count the reduced yield of munis compared to similar risk taxable securities as an "effective" tax. I think he's posted a comment to that effect recently. I think he...
by Doc
Thu Jan 15, 2015 10:41 am
 
Forum: Investing - Theory, News & General
Topic: Tax location spreadsheet & question
Replies: 17
Views: 1280

Re: Tax location spreadsheet & question

The wiki's basic approach, tax-inefficient in TIRA, tax-efficient in taxable, is complicated by current muni bond yields. For example, NY munis are yielding about the same as TBM and more than treasuries, while being totally tax efficient. You shouldn't be thinking of TBM when you are doing this as...
by Doc
Thu Jan 15, 2015 9:05 am
 
Forum: Investing - Theory, News & General
Topic: Tax location spreadsheet & question
Replies: 17
Views: 1280

Re: Vanguard 500 vs TSM: Small Caps at Multi-Year Highs

If you are going to play the stock style game you should probably look at the difference of the S&P 500 + a Small Value fund compared to TSM. But unless you well overweight the SV maybe to 30% of the total you probably won't see any difference as the previous charts suggest.
by Doc
Thu Jan 15, 2015 7:56 am
 
Forum: Investing - Theory, News & General
Topic: Vanguard 500 vs TSM: Small Caps at Multi-Year Highs
Replies: 7
Views: 992

Re: Tax location spreadsheet & question

Does my share of the TIRA depend on my tax rate now or on my tax rate when I withdraw? I would think the later. Tax rate on withdrawal depends in part on the size of the withdrawal which depends on RMDs (likely the main driver of my withdrawal timing) which depends on the size of the tIRA which dep...
by Doc
Thu Jan 15, 2015 7:45 am
 
Forum: Investing - Theory, News & General
Topic: Tax location spreadsheet & question
Replies: 17
Views: 1280

Re: Would managed funds beat index funds IF...

Wagnerjb wrote:Go to Morningstar and look up several Vanguard active funds. See their ranking in the asset class. You will find that the majority are in the top 50% of their class, simply due to costs.

Yep.
by Doc
Wed Jan 14, 2015 7:11 pm
 
Forum: Investing - Theory, News & General
Topic: Would managed funds beat index funds IF...
Replies: 34
Views: 2400

Re: Tax location spreadsheet & question

One complication, at least for me, is that my tax rate will depend to some degree on tax placement. You do not pay any tax at all on your share of the tIRA. If you are in the 25% tax bracket now your $1000 in the tIRA is the same as $750 in taxable. The other $250 belongs to the guv not you. If you...
by Doc
Wed Jan 14, 2015 4:55 pm
 
Forum: Investing - Theory, News & General
Topic: Tax location spreadsheet & question
Replies: 17
Views: 1280

Re: Tax location spreadsheet & question

My general methodology is to compare the terminal after tax value of $1,000 of bonds in a TIRA and $1,000 of equities in taxable to $1,000 of equities in a TIRA and $1,000 of bonds in taxable. I would suggest that you do not take that approach. Many people have taken that approach and wind up looki...
by Doc
Wed Jan 14, 2015 3:43 pm
 
Forum: Investing - Theory, News & General
Topic: Tax location spreadsheet & question
Replies: 17
Views: 1280

Re: Would managed funds beat index funds IF...

By the same axiom which tells you actively managed funds will do worse on average than index funds because of their higher expenses, they'd only do the same on average if their costs were the same*. And it's not realistic to expect their costs would be the same anyway. That's a very broad brushed s...
by Doc
Wed Jan 14, 2015 12:30 pm
 
Forum: Investing - Theory, News & General
Topic: Would managed funds beat index funds IF...
Replies: 34
Views: 2400

Re: Would managed funds beat index funds IF...

In theory, I would expect active funds to slightly underperform the index before expenses, particularly in less liquid markets such as small-caps, because they have higher trading costs. Using the same theory of higher trading costs in less liquid markets one could reach exactly the opposite conclu...
by Doc
Wed Jan 14, 2015 9:41 am
 
Forum: Investing - Theory, News & General
Topic: Would managed funds beat index funds IF...
Replies: 34
Views: 2400

Re: SEC Yield, YTM, Distribution Yield, Current Yield

It appears that the SEC Yield calculation was mandated because mutual funds were using many different methods in calculating yield. That made comparison between funds difficult and a standardized method and formula was needed. It also prevented funds from advertising a deceptive yield. Thanks for t...
by Doc
Tue Jan 13, 2015 7:32 pm
 
Forum: Investing - Theory, News & General
Topic: SEC Yield, YTM, Distribution Yield, Current Yield
Replies: 104
Views: 13869
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