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Re: The article on tax efficient placement needs to be rewri

After all this discussion, and the thousand of other posts on this can we at least conclude that there isn't a one size fits all solution?? A lot of factors go into it: expected returns, if your 401k pre-tax or Roth, current tax brackets, future taxes and tax rates, type of bonds, early retirement,...
by Doc
Thu Jul 24, 2014 9:26 am
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 39
Views: 2037

Re: The article on tax efficient placement needs to be rewri

This isn't a valid example, though, since you're merely comparing an all stock to an all bond portfolio. No, you are trading $1 in bonds in tax advantage to/from taxable and switching $1 in stocks in the opposite direction. (If your tax advantaged account is a traditional IRA/401k you need to adjus...
by Doc
Thu Jul 24, 2014 9:04 am
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 39
Views: 2037

Re: The article on tax efficient placement needs to be rewri

maybe - can you walk me through the 'extra 30-50 bps/yr with no additional risk' part? Assume: 1) 25% Tax on Treasuries and ~10% effective (15% statutory) tax rate on equities. (The actual equity tax bracket and length of investment determine the effective tax bracket for equities. It varies a lot ...
by Doc
Wed Jul 23, 2014 1:27 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 39
Views: 2037

Re: The article on tax efficient placement needs to be rewri

Really this comes down to what one considers to be "normal" interest rates. If rates now are "abnormally low" and are sure to go back up to 7 or 8% any day now, then bonds should go in tax advantaged. If sub-3% rates are the "new normal", then the old rules are wrong. ...
by Doc
Wed Jul 23, 2014 12:40 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 39
Views: 2037

Re: The article on tax efficient placement needs to be rewri

The entire article is written with the implicit assumption that it's better to hold bonds in a tax-advantaged space because of how the gains are taxed. Only a small section is provided with criticism of this idea, but without any supporting math. The article states that the most tax efficient asset...
by Doc
Wed Jul 23, 2014 12:04 pm
 
Forum: Investing - Theory, News & General
Topic: The article on tax efficient placement needs to be rewri
Replies: 39
Views: 2037

Re: Temptations and Dangers of Higher-Yielding Funds

Perhaps, but wrt the asset backed -- if it is spray-painted sub-prime credit card debt, the ratings may be meaningless. Not a big deal but I was just a bit surprised. OK you made me look. I didn't add it up but a lot of the asset backed is Ford and GE floorplan and autos. I would think that section...
by Doc
Wed Jul 23, 2014 11:47 am
 
Forum: Investing - Theory, News & General
Topic: Temptations and Dangers of Higher-Yielding Funds
Replies: 4
Views: 385

Re: Temptations and Dangers of Higher-Yielding Funds

I was looking at the portfolio holdings of Short Term Investment Grade yesterday and noticed that asset-backed was 10% and foreign was 10%. It got me wondering if Vanguard was reaching a little for yield in this fund. Without delving too deeply into the portfolio I would guess that the securitized ...
by Doc
Wed Jul 23, 2014 11:17 am
 
Forum: Investing - Theory, News & General
Topic: Temptations and Dangers of Higher-Yielding Funds
Replies: 4
Views: 385

Temptations and Dangers of Higher-Yielding Funds

There have been several topics recently about taking more credit risk to make up for the currently low bond yields. I found this recent Morningstar article sheds some light on the subject from the viewpoint of correlation with equities. This is a point that Larry Swedore has always made. This articl...
by Doc
Wed Jul 23, 2014 10:48 am
 
Forum: Investing - Theory, News & General
Topic: Temptations and Dangers of Higher-Yielding Funds
Replies: 4
Views: 385

Re: New 10-Year TIPS Auction July 24 2014

# Cruncher, Doc, Nisi and all you other smart people. Why are the TIPS rates so low. Is the thought of inflation causing them to go up or are they just going up because the ten year yield is going down? It has little to do with inflation rates. Inflation rates have been relatively stable over the p...
by Doc
Tue Jul 22, 2014 5:48 pm
 
Forum: Investing - Theory, News & General
Topic: New 10-Year TIPS Auction July 24 2014
Replies: 14
Views: 1272

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

The stylized example of all stocks in one account and all bonds in the other is an unlikely extreme. Similarly, stock volatility will provide rebalancing opportunities in both directions, keeping things in balance. ... I've read Reichenstein on taxes ... 1) The stylized example is an illustration. ...
by Doc
Tue Jul 22, 2014 4:43 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: New 10-Year TIPS Auction July 24 2014

grok87 wrote:i think 0.22% is a good guess. on bloomberg the WI market is showing 0.23/0.235

Damn. I thought interest rate were supposed to increase.

Image
by Doc
Tue Jul 22, 2014 4:26 pm
 
Forum: Investing - Theory, News & General
Topic: New 10-Year TIPS Auction July 24 2014
Replies: 14
Views: 1272

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

I vote for 50/50 because since both are sheltered accounts and hence you can freely exchanges assets between fixed income and stocks within them to maintain 50/50. However, the total value of the portfolio should be reduced by taxes due. You should educate yourself on the differences between a Roth...
by Doc
Tue Jul 22, 2014 4:02 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: New 10-Year TIPS Auction July 24 2014

Some of my old TIPS just matured and I am going to roll about half of them over. My order is in at Vanguard. I can't think of anything better to do, it's sorta kinda my plan, and I'm more or less sticking to it. My life expectancy is around 20 years at this point. I don't like the rates on the 10-y...
by Doc
Tue Jul 22, 2014 1:19 pm
 
Forum: Investing - Theory, News & General
Topic: New 10-Year TIPS Auction July 24 2014
Replies: 14
Views: 1272

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

I vote for 50/50 because since both are sheltered accounts and hence you can freely exchanges assets between fixed income and stocks within them to maintain 50/50. However, the total value of the portfolio should be reduced by taxes due. You should educate yourself on the differences between a Roth...
by Doc
Tue Jul 22, 2014 1:15 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

There is no reason to take taxes into account when you are talking about AA. The risk is determined by the AA and the AA is unaffected by what will eventually become of some portion of the assets. Let's try this though process. Suppose you and I form a 50/50 partnership to invest in a super safe go...
by Doc
Mon Jul 21, 2014 7:59 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

Now it does make sense to account for taxes in judging how much you will need in order to eventually produce the cash flow you need. I agree with this statement but its irrelevant. The AA in the Modern Portfolio Theory or CAPM is about risk not the amount of money you will have some time in the fut...
by Doc
Mon Jul 21, 2014 3:39 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

When I think about tax adjusting, not only do I need to know my own tax rate in the future, I need to know what my kids' tax rates will be when I die. I don't think future tax rates are that important. If you are tax adjusting to keep your risk constant by maintaining a desired AA you are concerned...
by Doc
Mon Jul 21, 2014 12:19 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

Not at all because I just include an estimate of future tax in the required income stream so I no more adjust my accounts for that than I do for housing expenses. Asset allocation is not about an income stream it is about the risk in your portfolio. That's why firms like Vanguard have a number of T...
by Doc
Mon Jul 21, 2014 11:04 am
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth,

But you also have to tax-adjust taxable account holdings if you follow this approach, so the difference may not be as large with just tax-deferred and taxable accounts (i.e., no Roths). I think that Roth and any other truly tax-free accounts are the only accounts that don't warrant any tax adjustme...
by Doc
Sun Jul 20, 2014 6:12 pm
 
Forum: Investing - Theory, News & General
Topic: Do you "Tax Adjust" your Asset Allocation (Pre vs Roth, etc)
Replies: 76
Views: 3225

Re: [Poll] % of 3 funds in your financial asset portfolio?

I don't consider "cash" to be either part of, or a departure from, the 3-fund portfolio, and I consider short-term bond index, short-term inflation-protected bond index, and I bonds as "cash." I would reverse this to consider cash as either short term bond index or any other sho...
by Doc
Sat Jul 19, 2014 9:54 am
 
Forum: Investing - Theory, News & General
Topic: [Poll] % of 3 funds in your financial asset portfolio?
Replies: 31
Views: 1655

Re: [Poll] How often do you re-balance?

Just alter your DCA so that the new contributions go into your bond fund. A typical response for a number of posters most likely the youngster's among us. Two comments: 1) Adding new contributions to an underweight asset class is balancing not re-balancing. 2) As one gets older and has a larger por...
by Doc
Mon Jul 14, 2014 5:07 pm
 
Forum: Investing - Theory, News & General
Topic: [Poll] How often do you re-balance?
Replies: 25
Views: 2189

Re: In a crash, will you re-balance to maintain your target

acegolfer wrote:"In a crash, will you re-balance to maintain your target AA?"

Fortunately, nobody answered "yes" or "no" without explanation.

Yes

noyopacific wrote:Yes, adding to equities in 11/2008 was difficult !

And it was very easy.
by Doc
Mon Jul 14, 2014 9:42 am
 
Forum: Investing - Theory, News & General
Topic: In a crash, will you re-balance to maintain your target AA?
Replies: 64
Views: 4116

Re: Tax Efficiency of Treasuries

Need to forget about the ROTH/Traditional IRA "dilemma". That is a separate issue involving future tax rates and contribution limit differences between the two accounts. Just consider the ROTH which has no tax and get your answer quickly. Settle the tIRA/ROTH debate again in another thread...
by Doc
Fri Jul 11, 2014 3:26 pm
 
Forum: Investing - Theory, News & General
Topic: Tax Efficiency of Treasuries
Replies: 19
Views: 1427

Re: Undestanding the Vanguard Total Bond Market fund (VBMFX)

nisiprius wrote:I don't think the bond market is 100X larger than the stock market.


Daily volume maybe?
by Doc
Thu Jul 10, 2014 2:01 pm
 
Forum: Investing - Theory, News & General
Topic: Undestanding the Vanguard Total Bond Market fund (VBMFX)
Replies: 21
Views: 3981

Re: The Risk of Short-term Bond Funds

...The high yield environment leading up to the S&L crisis was a lot more of a struggle for us old fogies. :P It is interesting that the "real" yield isn't so bad compared to some times in the past, in 1980 inflation was about 13% with 10yr Treasuries yielding around 10% In 2013 infla...
by Doc
Mon Jul 07, 2014 10:26 am
 
Forum: Investing - Theory, News & General
Topic: The Risk of Short-term Bond Funds
Replies: 152
Views: 10134

Re: The Risk of Short-term Bond Funds

Call_Me_Op wrote:We are all struggling with what to do in this ultra-low yield environment.


Hi young'n,

The high yield environment leading up to the S&L crisis was a lot more of a struggle for us old fogies. :P
by Doc
Sun Jul 06, 2014 3:09 pm
 
Forum: Investing - Theory, News & General
Topic: The Risk of Short-term Bond Funds
Replies: 152
Views: 10134

Re: Does corporate credit risk add value

If the subject portfolio has a long term focus (no monetary need for 5 years) does the risk showing up at the wrong time cause any problem beyond a behavioral one (i.e. you will sell when the portfolio is down despite the fact that you will not need the money for 5 years)? Therefore, one can obtain...
by Doc
Sat Jul 05, 2014 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: Does corporate credit risk add value
Replies: 71
Views: 4088

Re: Does corporate credit risk add value

Therefore, one could get lucky and select a strategy that makes more than the overall market, but that means that someone else has to select another strategy that makes less than the market. You're completely missing the point of the article. Larry is looking at the effect of credit risk on the ent...
by Doc
Fri Jul 04, 2014 7:07 pm
 
Forum: Investing - Theory, News & General
Topic: Does corporate credit risk add value
Replies: 71
Views: 4088

Re: [Poll] If all active funds have ER= 0.05%, will you buy

Nisi,

Do you "fret" about your index fund management changing its index every few years?
by Doc
Fri Jul 04, 2014 5:06 pm
 
Forum: Investing - Theory, News & General
Topic: [Poll] If all active funds have ER= 0.05%, will you buy any?
Replies: 55
Views: 2660

Re: [Poll] If all active funds have ER= 0.05%, will you buy

I know that "index" does not mean "low cost." They are different words. How about "low cost" does not mean "index". They are different words. :happy ... to be sure that no manager ever touched my money :idea: That's a completely different criteria. One which ...
by Doc
Thu Jul 03, 2014 6:35 pm
 
Forum: Investing - Theory, News & General
Topic: [Poll] If all active funds have ER= 0.05%, will you buy any?
Replies: 55
Views: 2660

Re: [Poll] If all active funds have ER= 0.05%, will you buy

Active funds in taxable accounts have lousy tax efficiency. Even in tax deferred, their high turnover will lead to high costs which are not reflected in the expense ratio. agree. estimates i have seen (Mr. Bogle?) are that for every 100% of turnover, the hidden expenses are 50 bps. So a fund with a...
by Doc
Thu Jul 03, 2014 3:28 pm
 
Forum: Investing - Theory, News & General
Topic: [Poll] If all active funds have ER= 0.05%, will you buy any?
Replies: 55
Views: 2660

Re: The Risk of Short-term Bond Funds

nisiprius wrote:Don't tell interest rates what they can or can't do. They can darn well do whatever they please.


Or maybe whatever the Fed pleases. :twisted:
by Doc
Wed Jul 02, 2014 4:26 pm
 
Forum: Investing - Theory, News & General
Topic: The Risk of Short-term Bond Funds
Replies: 152
Views: 10134

Re: Intermediate TIPS fund

I think it's about the best intermediate TIPS fund out there. But if course, if apples don't suit you, get something else. -- Tet If I want an intermediate term bond fund I prefer one with intermediate term bonds not one with just an intermediate term average duration. For example FlexShares iBoxx ...
by Doc
Wed Jul 02, 2014 3:12 pm
 
Forum: Investing - Theory, News & General
Topic: Intermediate TIPS fund
Replies: 22
Views: 2574

Re: Riding the yield curve, in action

I think the only area we might disagree slightly is that I think you are saying that the best (albeit imperfect) expectation one can have is that the yield curve doesn't change. I think that idea came from Larry Swedroe. IIRC his comment was something like "the current yield curve is the best ...
by Doc
Mon Jun 30, 2014 5:41 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 40
Views: 3676

Re: Riding the yield curve, in action

doc - I don't think I agree with: "I believe that there is always a roll yield if the slope of the yield curve is positive." There will always be a roll yield, but I don't find it accurate to say that you can expect it to be positive just based on slope of the current yield curve. "R...
by Doc
Mon Jun 30, 2014 4:29 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 40
Views: 3676

Re: Riding the yield curve, in action

In particular, you can always calculate a roll yield for a past period, which could be positive or negative. But it isn't strictly clear that you should expect roll yield to be positive in the future, even if the yield curve is positively sloped. 1) Without testing I believe that there is always a ...
by Doc
Mon Jun 30, 2014 11:05 am
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 40
Views: 3676

Re: [Vanguard Total Int'l index - Check the Benchmark]

Neither Schwab nor Morningstar is showing VTIAX against the index it tracks but I wouldn't expect them too If you use the the chart on the Portfolio tab on M* there is a pull down menu for "add benchmark" among the choices are "Primary Prospectus Benchmark", "Secondary Pros...
by Doc
Sun Jun 29, 2014 10:55 am
 
Forum: Investing - Theory, News & General
Topic: [Vanguard Total Int'l index - Check the Benchmark]
Replies: 15
Views: 2009

Re: Bond yield =/= guaranteed return

"Suppose the yield on intermediate bond fund is 2%. If one buys this bond today and sells it in 1 year, the realized return will be 2%." Not quite. How about: Suppose the yield on [an] intermediate bond fund is 2%. If one buys this bond today and sells it in 1 year, the realized return wi...
by Doc
Fri Jun 27, 2014 4:43 pm
 
Forum: Investing - Theory, News & General
Topic: Bond yield =/= guaranteed return
Replies: 36
Views: 3306

Re: Bond yield =/= guaranteed return

I don't mean to be snarky, Doc & Ace, but the juxtaposition of your two posts is too striking to pass over. I wasn't criticizing your words. You pointed out that there was more than one interpretation of the phrase "earn the yield". And you gave some numerical examples. Good. I agree....
by Doc
Fri Jun 27, 2014 4:16 pm
 
Forum: Investing - Theory, News & General
Topic: Bond yield =/= guaranteed return
Replies: 36
Views: 3306

Re: Wash Sale Violations: Cap Loss Harvesting Index Fund Bas

My question for you folks is have you experienced any tax law rulings regarding loss harvesting with index fund portfolios - I understand common(ish) logic to be try to find a different underlying index with similar Beta etc, but want to know if anyone has heard of a case go to trial from the IRS c...
by Doc
Thu Jun 26, 2014 7:26 pm
 
Forum: Investing - Theory, News & General
Topic: Wash Sale Violations: Cap Loss Harvesting Index Fund Baskets
Replies: 6
Views: 480

Re: Bond yield =/= guaranteed return

But this isn't the only possible meaning of "earn the yield". The problem is the "words". #Cruncher gives a lot of examples as to what is going on. An alternate way to explain it is to look at the two mathematical formulas that are used to describe the situation. Many retail inv...
by Doc
Thu Jun 26, 2014 12:17 pm
 
Forum: Investing - Theory, News & General
Topic: Bond yield =/= guaranteed return
Replies: 36
Views: 3306

Re: Bonds vs. Cds Discussion

There are two concepts here that get conflated. 1) How do the two types of FI react to a change in interest rate? In this case they behave similarly with their price change going in the opposite direction of the interest rate. If you hold the instrument to maturity both will return the payments init...
by Doc
Thu Jun 26, 2014 11:56 am
 
Forum: Investing - Theory, News & General
Topic: Bonds vs. Cds Discussion
Replies: 22
Views: 1476

Re: FTSE all-world ex US index or TISM?

nisiprius wrote:Vanguard has pretty much acknowledged that VFWIX was created specifically because they wanted to have a broad international index ETF, and at that time VGTSX was a fund of funds ...


Was there also an issue with qualified dividends for the fund of funds concept?
by Doc
Thu Jun 26, 2014 11:21 am
 
Forum: Investing - Theory, News & General
Topic: FTSE all-world ex US index or TISM?
Replies: 24
Views: 1139

Re: Bonds vs. Cds Discussion

The main reason to use Treasuries is mainly that they're easier to access. I disagree. While access is an important consideration the main reason to use Treasuries is their negative price correlation to equities in periods of equity market disruptions. CD's don't have this attribute. Each individua...
by Doc
Wed Jun 25, 2014 8:46 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds vs. Cds Discussion
Replies: 22
Views: 1476

Re: FTSE all-world ex US index or TISM?

Interesting chart... So a pretty strong correlation compared to others, not a huge impact if left out, caps look to be the biggest factor in the decision. Right. If I can include Canada, good. But if other factors point to a fund/ETF/index that excludes North America, eh so what? As I said up threa...
by Doc
Wed Jun 25, 2014 8:36 pm
 
Forum: Investing - Theory, News & General
Topic: FTSE all-world ex US index or TISM?
Replies: 24
Views: 1139

Re: FTSE all-world ex US index or TISM?

How correlated are the US and Canadian markets? 0.71 last year. http://www.bespokeinvest.com/thinkbig/2014/3/14/global-equity-market-correlation-matrix.html Ain't Google a wonderful thing? :D ("correlation us canada market" -> <search>) FWIW I like to have Canada in my international. And ...
by Doc
Wed Jun 25, 2014 8:14 pm
 
Forum: Investing - Theory, News & General
Topic: FTSE all-world ex US index or TISM?
Replies: 24
Views: 1139

Re: FTSE all-world ex US index or TISM?

By omitting these markets you're losing significant diversification and leaving out asset classes that have historically brought a higher return. If we believe in CAPM than that higher return comes with the "price" of higher risk. As an oldster I prefer the developed markets funds but if ...
by Doc
Wed Jun 25, 2014 6:09 pm
 
Forum: Investing - Theory, News & General
Topic: FTSE all-world ex US index or TISM?
Replies: 24
Views: 1139

Re: An Argument for Long Term Treasury Bonds

Browser wrote:So, what's wrong with long term TIPS? You get a similar negative correlation with equities but are protected from inflation-related rate increases.


That's what it says in the book but in '08 it wasn't so. :( And the only equity bear we have seen since TIPS ceased to be a novelty was '08.
by Doc
Wed Jun 25, 2014 2:48 pm
 
Forum: Investing - Theory, News & General
Topic: An Argument for Long Term Treasury Bonds
Replies: 35
Views: 1846

Re: Tax-Managed Small-Cap in Tax Advantaged Account?

I am wondering if anyone does this. Just did it yesterday. When you buy/exchange into the Tax Managed Fund you will get a message that "you are weird and do you know what you are doing?" Actually it's a polite warning. Just blow through the warning and you're in with a true small cap fund.
by Doc
Tue Jun 24, 2014 12:02 pm
 
Forum: Investing - Theory, News & General
Topic: Tax-Managed Small-Cap in Tax-Sheltered Account?
Replies: 2
Views: 277

Re: Location does matter when measuring asset allocation

To calculate the location-adjusted AA, what tax rate would one use for a taxable IRA from which one must take RMDs in a couple years? It doesn't matter enough to worry about. If you don't know if it's going to be 15% or 25% pick 20%. You then multiply the account balance by 0.80. Every five year or...
by Doc
Tue Jun 24, 2014 10:21 am
 
Forum: Investing - Theory, News & General
Topic: Location does matter when measuring asset allocation
Replies: 45
Views: 2977
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