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Re: So do we care more about change in bond price or bond yi

I'll continue to use zero-coupon bonds since all return is from price-change, so it's easier to see the offsetting effects on price of maturation and yield-curve change. Kevin, first what are you doing up at 3 O'clock in the AM posting about bond yields. I have also been awake at that time but have...
by Doc
Sun Oct 19, 2014 1:00 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Personally my investment philosophy is not to buy assets that have negative prospective real returns. So for me the risk would be getting shut out of the tips market for a substantial period of time. This is basically my argument for not buying the thirty now. You don't need to shut yourself out of...
by Doc
Sun Oct 19, 2014 11:13 am
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: So do we care more about change in bond price or bond yi

My summary of the simplified case used for illustration. Five year zero with 2% YTM. Original cost ~$900. Straight yield curve - slope is 0.4% per year. Two funds with different strategies. "F0-5" fund: A zero to five year fund - buy at auction and hold to maturity. Duration 2.5 years. YTM...
by Doc
Sat Oct 18, 2014 10:56 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: So do we care more about change in bond price or bond yi

The statement is absolutely right and it's easy to prove. First, with a single bond: if I invested $10K four years ago in a zero coupon at about the current 1.45% yield (example works the same with 2% or any other number, edit: and it works the same with coupon bonds currently sitting at a premium)...
by Doc
Fri Oct 17, 2014 6:11 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: So do we care more about change in bond price or bond yi

Doc: the simple risk story that I believe you're looking for is this: the 5-to-zero fund has a fifth of its assets in Treasuries in their final year making 0.09% yield; these Treasuries are, for the purposes of the individual investor with 1% bank accounts, deadbeats. The 5-to-1 fund doesn't, and i...
by Doc
Fri Oct 17, 2014 4:02 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Another approach to the same result is to buy a ten and roll it three times or some combination of the same. That way you don't lock in the low 1% yield for thirty years. Doesn't this violate the no-arbitrage condition of market equilibrium? Are you assume the market is in disequilibrium? It seems ...
by Doc
Fri Oct 17, 2014 3:51 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Re amortization of (market) bond premium You don't have to amortize each year. You could ignore the purchase premium. Or you could wait until 2044 to deduct it. Maybe I have this backwards? You have to accrete Original Issue Discount (which is also the TIPS inflation increase). You have the choice o...
by Doc
Fri Oct 17, 2014 3:33 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Just placed my order. Here is a guide to help decide how much each bond will likely cost at auction: 1) Bloomberg shows the current price on the secondary at 113 + 8/32 = 113.25 2) The inflation factor is 1.02062 3) The accrued interest per bond is 2.936 per $1,000 of face or 0.2936 per $100 of fac...
by Doc
Thu Oct 16, 2014 7:20 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: So do we care more about change in bond price or bond yi

Kevin I don't have the time to go through your detailed post but let me clarify a couple of points. By a static yield curve I mean that it doesn't shift during the time period under consideration but only for purposes of the discussion to try separate the different pieces of the "puzzle". ...
by Doc
Thu Oct 16, 2014 7:14 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: So do we care more about change in bond price or bond yi

In reply to Kevin, we are in agreement except maybe for some of the tax aspects of amortization/accretion accounting and that not worth worrying about. The price change will depend on the steepness of the yield curve between the two points, or more simply, on the YTMs of the bond at the two points. ...
by Doc
Thu Oct 16, 2014 10:53 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: So do we care more about change in bond price or bond yi

Kevin, I have not spent enough time analyzing your response but intend to later. What I am attempting to do is to simplify the problem as much as possible so that we can get away from what Vanguard does or what the shape of the yield curve is now or what it will be tomorrow. This is based on the cra...
by Doc
Wed Oct 15, 2014 8:24 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: So do we care more about change in bond price or bond yi

Let me set up a trivial example in order to try to understand what this is all about. We have two Treasury funds that invest only in a minimum number of five year zero coupon Treasuries. The yield curve does not change during our analysis. Fund 0-5 invests in five zero coupon securities and holds th...
by Doc
Wed Oct 15, 2014 11:59 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: "Vanguard converting mutual fund accounts to brokerage?

Anyone that converted had any issues with agent authorization settings transferring over? Maybe. (This is really screwy.) OK we haven't switched because Vanguard has issues. One was that our joint mutual fund account did not have an associated brokerage account. So I added one - still nothing in it...
by Doc
Wed Oct 15, 2014 11:44 am
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 72
Views: 7993

Re: So do we care more about change in bond price or bond yi

I think the investopedia definition (first quote) refers to interest rate futures specifically. A consequence is it doesn't have to deal with bonds of various coupons and this might be why it only talks about capital gains. We're not interested in futures over here (well, not me / Kevin / stlutz as...
by Doc
Tue Oct 14, 2014 1:25 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: So do we care more about change in bond price or bond yi

Question only. Most of this discussion is above my pay grade and I don't want to take sides. My understanding of "riding the yield curve" was that the benefit was always there if the yield curve had a positive slope but that the benefit might not be enough to cover the trading costs. We ha...
by Doc
Tue Oct 14, 2014 12:29 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: Tax efficiency of short term bonds

I suppose that tax-efficiency boils down how much taxes one would pay on the total return of an investment. I would state it as follows. Tax efficiency is the ratio of taxes paid to total realized or realizable return. No tax (in)efficiency is the ratio of taxes paid (and accrued) to the total amou...
by Doc
Tue Oct 14, 2014 11:12 am
 
Forum: Investing - Theory, News & General
Topic: Tax efficiency of short term bonds
Replies: 10
Views: 590

Re: Market corrections and rebalancing band

Thanks everyone for their remarks. It's been helpful if somewhat confusing at times. There are a lot of good rebalancing methods that work in normal times. Let's hope that the current ISIL/ISIS, North Korea, Ukraine, Ebola, Ferguson Missouri and the upcoming elections don't lead us to another Lehman...
by Doc
Tue Oct 14, 2014 10:59 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

However, I've decided that the life cycle approach has merit and slowly started building a floor for retirement since it's about 10 years away. If you buy an annuity to fund all or part of your retirement there is some "insurance" cost that you pay to the annuity company to cover the risk...
by Doc
Tue Oct 14, 2014 10:51 am
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: TIPS & Rick Ferri

The topic of "phantom income" is of interest to me because the only place I have available for TIPS is my taxable account. I currently hold a small number of TIPS there - and will add if real rates become attractive. Just remember that it is a cash flow problem not a return problem as in ...
by Doc
Tue Oct 14, 2014 10:41 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4893

Re: TIPS & Rick Ferri

... circumventing the "phantom income problem?" Do we ever worry about the "phantom reinvestment of dividends problem"? Can you clarify? A lot of us reinvest dividends. If so we have to pay taxes on money we never get in the year the taxes are paid. The OID has the same effect. ...
by Doc
Mon Oct 13, 2014 4:05 pm
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4893

Re: Market corrections and rebalancing band

Have settled on, and written into our IPS, what might be called 'Equal Percentage' (of deviation) Rebalancing, an idea borrowed from Process Control (Integral/Reset Action) where system stability is paramount. OMG, shades of a prior life - like 1975. But it may work. I'll give it some thought to my...
by Doc
Mon Oct 13, 2014 12:06 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

Sure. Going back to 50/50 illustration, your goal is to build a 100/100 portfolio - twice as much as you have today. Your first goal is eventual 4% withdrawal insulated as best as possible from *Stock* market volatility. You have other goals for the riskier assets - but they would be nonetheless th...
by Doc
Mon Oct 13, 2014 10:55 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: TIPS & Rick Ferri

Call_Me_Op wrote:... circumventing the "phantom income problem?"


Do we ever worry about the "phantom reinvestment of dividends problem"?
by Doc
Mon Oct 13, 2014 9:40 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4893

Re: Market corrections and rebalancing band

Doc, you should consider a couple of things to incorporate in your plan (IPS). 1. Floor in safe assets. That limits the dollar amount of safer assets to stop rebalancing during steep and sudden market drops. 2. Tighter bands. The one potential cost here may be clipping the benefit from momentum in ...
by Doc
Mon Oct 13, 2014 9:30 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

i rebalance only on my birthday, which is probably silly and illogical and maybe even an emotional act that is forbidden under Boglehead law. And for the last 20 years or so, it's worked like a charm . How did you make out in the fall of '08 or is your birthday in October maybe? :happy If you are g...
by Doc
Mon Oct 13, 2014 8:08 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: TIPS & Rick Ferri

Hi Doc, Do you invest in the Vanguard TIPS fund? No. Short term fund: I don't see any benefit from short term TIPS. The risk of unexpected inflation in the short term is low simply because we should be able to predict inflation fairly well in the near term. Further the penalty for that risk actuall...
by Doc
Mon Oct 13, 2014 7:59 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4893

Re: "Vanguard converting mutual fund accounts to brokerage?

toto238 wrote:I could be wrong, but I'm highly skeptical that Vanguard is ever going to be a bank, per se.

Schwab and others followed Vanguard with low cost index funds. Schwab created a bank a few years ago. Maybe Vanguard will follow Schwab.
by Doc
Sun Oct 12, 2014 7:13 pm
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 72
Views: 7993

Re: Market corrections and rebalancing band

I don't know why this bothers you so much, Doc. If you don't like the correction magnitude requirement that results from 5% rebalancing bands, just change it so it's based on the high watermark, or tighten the band. It's your portfolio and you can do anything you want with it. On that note, mine is...
by Doc
Sun Oct 12, 2014 7:07 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

I don't know what corrections have to do with it because the moves you make should be dependent upon the holdings you have at any instant and what you need to do like invest dividends or make required withdrawals for living or whatever so I just think you have spun up a problem that isn't really th...
by Doc
Sun Oct 12, 2014 5:26 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: So do we care more about change in bond price or bond yi

Kevin and ogd, I'm trying to follow this discussion as best I can. It appears that "roll yield" is an equivalent term to "rolling the yield" curve. Is my interpretation anywhere near correct? Riding and Rolling the Yield Curve in Government Securities An investment strategy that ...
by Doc
Sun Oct 12, 2014 4:59 pm
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: Market corrections and rebalancing band

In the distribution phase you can partially rebalance with withdrawals. When stocks are up take withdrawals from stocks, when they're down withdraw from bonds instead. I'm still accumulating (and rebalancing with contributions), so I have no direct experience with this. Money is fungible so there's...
by Doc
Sun Oct 12, 2014 12:11 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: "Vanguard converting mutual fund accounts to brokerage?

I'm surprised they will not be retaining the option to send div/cap gain distributions straight to an external bank account. Seems like an important service to retain There are work arounds to this kind of stuff. It's just a matter of changing the way you were doing things. Put your dividends in MM...
by Doc
Sat Oct 11, 2014 7:54 pm
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 72
Views: 7993

Re: Market corrections and rebalancing band

If you want a different strategy go for it but I really don't understand what problem you're trying to solve so I'll stay with my current IPS and only "formally" rebalance if an asset class actually crosses its range but otherwise use new money to plus up lagging sectors (have to look at ...
by Doc
Sat Oct 11, 2014 4:20 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: "Vanguard converting mutual fund accounts to brokerage?

I have two individual accounts. They have different account numbers. Within them they will have whatever investments I choose under the account number and then the fund code. I don't have any brokerage assets so they all have the account number for mutual funds. I also have multiple IRAs with diffe...
by Doc
Sat Oct 11, 2014 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: "Vanguard converting mutual fund accounts to brokerage?
Replies: 72
Views: 7993

Re: Wash Sale Question

Thank you for the replies, very helpful. This stuff can be tricky! What is the consensus on "substantially identical" as it relates to Vanguard [pick an index fund] vs. generic 401k index fund (generic meaning no publicly traded ticker - just a fund set up for my MegaCorp 401k plan)? For ...
by Doc
Sat Oct 11, 2014 10:30 am
 
Forum: Investing - Theory, News & General
Topic: Wash Sale Question
Replies: 10
Views: 521

Re: Question - Vanguard's New Brokerage Account Numbers

On Vanguard's "Balancing and Holdings" screen each account has a "registration" link associated with it. Click on it and check the registration. If you have both a mutual fund and an associated brokerage account you will have two account numbers with the same exact registration. ...
by Doc
Sat Oct 11, 2014 10:05 am
 
Forum: Investing - Theory, News & General
Topic: Question - Vanguard's New Brokerage Account Numbers
Replies: 7
Views: 915

Re: Market corrections and rebalancing band

But that is OK. Why do you rebalance? Presumably, in order to keep the risk level of your portfolio correct; you don't care much about the risk difference between 46% and 54% stock (which represents only a 4% difference in portfolio value if the stock market loses 50%, and actually less because you...
by Doc
Sat Oct 11, 2014 9:50 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: So do we care more about change in bond price or bond yi

Found it in the annual report: 6. Other: Interest income includes distributions received from Vanguard Market Liquidity Fund and is accrued daily. Premiums and discounts on debt securities purchased are amortized and accreted, respectively, to interest income over the lives of the respective securi...
by Doc
Sat Oct 11, 2014 9:25 am
 
Forum: Investing - Theory, News & General
Topic: So do we care more about change in bond price or bond yield?
Replies: 145
Views: 9812

Re: Market corrections and rebalancing band

Again, it takes only an 18% correction (not 30%) for the market to adjust a 54.9/45.1 portfolio to 50/50 portfolio. Yes but under a 5% below target "rule" I don't start buying until I reach 45/55 not 50/50. I only have to buy ~17% but the market had to drop by ~34% before I started buying...
by Doc
Fri Oct 10, 2014 3:46 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

Again, it takes only an 18% correction (not 30%) for the market to adjust a 54.9/45.1 portfolio to 50/50 portfolio. Yes but under a 5% below target "rule" I don't start buying until I reach 45/55 not 50/50. I only have to buy ~17% but the market had to drop by ~34% before I started buying...
by Doc
Fri Oct 10, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

In a concurrent thread "TIPS and Rick Ferri" fwiw The BIGGEST advantage of TIPS IMO is that they allow you to earn the term premium without taking inflation risk Larry The issue here is not inflation protection but the time frame. Do you want to commit to a 30 year investment at 1% real? I...
by Doc
Fri Oct 10, 2014 1:31 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: Market corrections and rebalancing band

Lot's of people jumped in here. I originally used "out of the air" numbers and Landy used a different starting assumption. I think we all got back on the same page. No matter what your starting point or the size of your bands where you start from makes a big difference when you start buyin...
by Doc
Fri Oct 10, 2014 1:20 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

I don't see it that way. A 10% *stock* market correction in either direction wouldn't reach 5% bands when holding a 50/50 I was winging the numbers. The point was supposed to be that if your AA is 50/50 and you are going to buy when your equity goes to 45% of your portfolio you rebalance a lot soon...
by Doc
Fri Oct 10, 2014 1:12 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

Hi Doc, The GDP figure are real. Not trying to be snarky but I did state that twice in the post! The long term treasury rates is a trickier question. I believe it is the 10 year. The usefulness of the Deutsche Bank research, IMHO, is to put a slightly longer term perspective on the question: what r...
by Doc
Fri Oct 10, 2014 12:28 pm
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743

Re: Market corrections and rebalancing band

... After all, we rebalance with the hope that an asset with past higher/lower than average returns will have future lower/higher than average returns. ... Rebalance your portfolio approximately once every few years; more than once per year is probably too often. In taxable portfolios, do so even l...
by Doc
Fri Oct 10, 2014 12:11 pm
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

Maybe add momentum to your bands strategy? Hmmnn interesting. How would you implement this idea? Go half way back instead of all the way to the desired point? Would you apply the idea in both bull and bear markets? But I was thinking that the problem was not getting the signal to "pull the tri...
by Doc
Fri Oct 10, 2014 11:43 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: Market corrections and rebalancing band

Doc, That is another way of saying your bands were too broad. Would have been nice to have had that thought before the market was down. I think it's harder to sell stocks at all time highs than it is to sell them at all time highs minus five percent. But smarter. I need to think about this idea som...
by Doc
Fri Oct 10, 2014 11:18 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: TIPS & Rick Ferri

At the maturity of a TIPS, you receive the adjusted principal or the original principal, whichever is greater. Original principal is it's price ratio to par value at issuance (quoted as a price; 102.3, 100.8, etc). This provision protects you against deflation if you buy a bond at issuance . The yi...
by Doc
Fri Oct 10, 2014 10:44 am
 
Forum: Investing - Theory, News & General
Topic: TIPS & Rick Ferri
Replies: 28
Views: 4893

Market corrections and rebalancing band

The recent volatility in the stock market has made me rethink how one should apply rebalancing bands. A common band application is to rebalance only when your AA is off by +/- 5%. So if you have a 50/50 AA and it is in balance it requires a market correction of about ~10% to hit the lower band. But ...
by Doc
Fri Oct 10, 2014 10:37 am
 
Forum: Investing - Theory, News & General
Topic: Market corrections and rebalancing band
Replies: 71
Views: 4041

Re: 30 yr TIPs auction announced 16 oct: yield=1.10%?

What is the advantage to buy 30 year TIPS from an auction over lets say Vanguard Inflation-Protected Securities Fund Investor Shares (VIPSX)? The securities in the fund is more or less weighted to the bond issuance where a 30 year ladder gives equal (real) weight to each year. This results in a muc...
by Doc
Fri Oct 10, 2014 10:26 am
 
Forum: Investing - Theory, News & General
Topic: 30 yr TIPs auction announced 16 oct: yield=1.10%?
Replies: 87
Views: 5743
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