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Re: Riding the yield curve, in action

Actually, I'm saying just the opposite of "it's complicated". If we look at individual bonds, it's quite simple. The original stlutz post used individual bonds, and the bond math was straightforward and verifiable. A bond fund is made up of individual bonds, so there is no additional magic...
by Kevin M
Fri Dec 19, 2014 10:19 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 50
Views: 5670

Re: Bond Fund vs CDs - which to use?

Treasury bonds have this knack for going up in price when the stock market is tanking. Are you sure about this? Are you sure this perception isn't a result of recency bias? Hint 1: look at the performance of stocks and bonds during all of the worst stock downturns over the last 85 years. Hint 2: th...
by Kevin M
Fri Dec 19, 2014 9:44 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 38
Views: 2189

Re: Bond Fund vs CDs - which to use?

It might do better or worse than CDs; it shouldn't make a big difference as my portfolio also contains a significant amount of stocks which will probably have so much more volatility as to make bond returns less noticeable. This is a key point. For someone with a high allocation to stocks, it proba...
by Kevin M
Fri Dec 19, 2014 9:33 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 38
Views: 2189

Re: CD or Treasury ladder trade-off

Maybe I'm missing something but this sounds more like market timing than it does rebalancing. Please elaborate. It's really just a matter of framing. If I thought I could predict interest rates, I would go all in one one or the other investment. Since I don't think I can predict interest rates, I a...
by Kevin M
Fri Dec 19, 2014 9:12 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: Recharacterizations, Explanations, and E-filing (Turbota

Somehow I get a bit worried about IRS inquiries but I guess they should know about recharacterizations by now. You can always splurge and put out the $50 or whatever for Audit Defense. That's what I do for my return and any other relatively complex returns I do or help with. I don't bother for simp...
by Kevin M
Fri Dec 19, 2014 8:55 pm
 
Forum: Personal Finance (Not Investing)
Topic: Recharacterizations, Explanations, and E-filing (Turbotax)
Replies: 17
Views: 942

Re: Effect of 0.79 correlation: fantasy vs. reality

Kevin, The question I'm interested in is the question of any alleged diversification benefit arising from alleged "low" correlations. Sure, but we got off on a little tangent, right? "Holy data, Batman". And in both cases, the configuration of the MPT parameters and the efficien...
by Kevin M
Fri Dec 19, 2014 8:43 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Bond Fund vs CDs - which to use?

Timing the bond market is as difficult as timing the stock market. Here's an example: According to Morningstar , VBMFX (Vanguard's Total Bond Market fund) had a 5.4% total return, year-to-date as of yesterday. That's much better than the best yielding CD bought on January 1st. Funny. I just mention...
by Kevin M
Fri Dec 19, 2014 7:44 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 38
Views: 2189

Re: Riding the yield curve, in action

This thread might as well be titled "Bond math in action". All bond return comes from two sources: interest payments and price change. Neglecting default, which we can safely do for Treasuries, coupon payments are known in advance. So the only unknown is price change, and that depends pure...
by Kevin M
Fri Dec 19, 2014 7:27 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 50
Views: 5670

Re: CD or Treasury ladder trade-off

If you hold a 5 year CD and VBTLX goes up at a higher rate over the next few years you will be wondering why you bought the CD... Not unless you make the mistake of confusing strategy and outcome. That would be like regretting you owned any bonds when US stocks went up 30% last year (and bonds lost...
by Kevin M
Fri Dec 19, 2014 7:02 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: CD or Treasury ladder trade-off

At these rates of >2% for 5 year CDs, it seems to me that it's a better investment than Vanguard Total Bond Market Index (VBTLX) which has an SEC yield of 2.08% as of yesterday. CDs also carry less risk, etc. Am I understanding this right? Should I be allocating some of my long term bond fund alloc...
by Kevin M
Fri Dec 19, 2014 6:41 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: CD or Treasury ladder trade-off

Hi Kevin - Yes - I don't really want to tie up any additional money in 529 plans. If we end up getting scholarships or college drop-outs I can take my cash from the CDs and use in another manner without having to worry about penalties. The 10% penalty on earnings is waived if the funds are not used...
by Kevin M
Fri Dec 19, 2014 6:33 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: Recharacterizations, Explanations, and E-filing (Turbota

Or just do the entire recharacterization next year when you know the exact numbers. As I mentioned above, I've never had any problems doing it that way.

Kevin
by Kevin M
Fri Dec 19, 2014 6:26 pm
 
Forum: Personal Finance (Not Investing)
Topic: Recharacterizations, Explanations, and E-filing (Turbotax)
Replies: 17
Views: 942

Re: Ally 5-year CD from 1.6% to 2%?

I have a ton of CDs at Ally with the 60 day EWP, but I stopped buying CDs there when their rates dropped under 2%. Last I bought there was late 2011; since then, have bought many CDs elsewhere earning north of 2%. I did early withdrawals from a couple of my Ally 2% CDs to buy some PenFed 3% 5-year C...
by Kevin M
Fri Dec 19, 2014 3:36 pm
 
Forum: Investing - Help with Personal Investments
Topic: Ally 5-year CD from 1.6% to 2%?
Replies: 6
Views: 1502

Re: Effect of 0.79 correlation: fantasy vs. reality

I saw a good 3-D visualization of the returns of the 5x5 portfolios, and the SCV corner really stands out. I think it might have even placed various funds on the chart, making it clear how different they were than the 5x5 SCV corner portfolio. I'll try to find it. Here's a blog post where I saw it:...
by Kevin M
Fri Dec 19, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Effect of 0.79 correlation: fantasy vs. reality

Kevin M (and anyone else:) Holy data, Batman. The discrepancy--OK, the difference--between the Fama French Benchmark Portfolio S/H and the Portfolio Visualizer Asset Class Returns for Small Cap Value is... staggering. I don't think this is a problem on Silicon Cloud's part I think this is an issue ...
by Kevin M
Fri Dec 19, 2014 2:22 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Effect of 0.79 correlation: fantasy vs. reality

The difference is hugely important, because without that "hook" at the end we again have a situation where the optimum portfolio simply consists of 100% of one of the assets. Which perhaps not uncoincidentally is essentially "The Larry Portfolio"; i.e., 100% small-cap value stoc...
by Kevin M
Fri Dec 19, 2014 2:09 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Effect of 0.79 correlation: fantasy vs. reality

Which FF portfolio are you using?
by Kevin M
Fri Dec 19, 2014 1:37 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Bond Fund vs CDs - which to use?

If you search my posts, you'll find hundreds of posts on this topic. I'm a big fan of direct CDs (purchased directly from a bank or credit union). Johno explained the key benefits, so I won't repeat those points here, but I also summarized the benefits in a blog post back in June: GE Capital Retail ...
by Kevin M
Fri Dec 19, 2014 1:34 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Fund vs CDs - which to use?
Replies: 38
Views: 2189

Re: Effect of 0.79 correlation: fantasy vs. reality

I think easiest way to investigate is to load the data used by PV into a spreadsheet (copy/paste worked for me). Then you can see the annual returns, and calculate the means, SDs, and correlations yourself. In PV click on FAQ (in top banner), then under Asset Class Return Data Sources, click yearly ...
by Kevin M
Fri Dec 19, 2014 12:59 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: CD or Treasury ladder trade-off

So have you dismissed the CO 529 SV+ fund earning 3.09% in 2014 out of hand?

Kevin
by Kevin M
Thu Dec 18, 2014 10:40 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: CD or Treasury ladder trade-off

For CDs, a good place to start at DepositAccounts is the most recent CD rates summary post in the blog; e.g., CD Rates Summary December 9, 2014

Kevin
by Kevin M
Thu Dec 18, 2014 6:54 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: CD or Treasury ladder trade-off

First, I have posted extensively here and in my blog about the benefits of CDs, especially direct CDs (purchased directly from a bank or credit union). Here is my most recent blog post on the topic: GE Capital Retail Bank 5-Year 2.3% CD (GE Capital Retail Bank is now Synchrony Bank, and their CD rat...
by Kevin M
Thu Dec 18, 2014 6:46 pm
 
Forum: Investing - Help with Personal Investments
Topic: CD or Treasury ladder trade-off
Replies: 29
Views: 1387

Re: Effect of 0.79 correlation: fantasy vs. reality

I thought it would be interesting to show the same kind of analysis, but using data for 1972 - 2013 with small-cap value (SCV) instead of small-cap blend, since SCV is the preferred tilter's choice. This also might help answer some of the questions that have been asked here. First, we can pop over t...
by Kevin M
Thu Dec 18, 2014 5:12 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Effect of 0.79 correlation: fantasy vs. reality

Good post. I want to clarify a few points about the CAPM model being used here. MPT and CAPM are models for a single holding period, so rebalancing does not come into play. The CAPM model is a pricing model that applies to expected future returns and the uncertainty of those returns. Different scena...
by Kevin M
Thu Dec 18, 2014 2:41 pm
 
Forum: Investing - Theory, News & General
Topic: Effect of 0.79 correlation: fantasy vs. reality
Replies: 47
Views: 2600

Re: Recharacterizations, Explanations, and E-filing (Turbota

I have done recharacterizations of both contributions and conversions, used TurboTax, and was able to efile. They do support entering the explanation; I think they provide a template for it. My recharacterizations always have been in the year following the tax year of the conversion or contribution,...
by Kevin M
Wed Dec 17, 2014 7:50 pm
 
Forum: Personal Finance (Not Investing)
Topic: Recharacterizations, Explanations, and E-filing (Turbotax)
Replies: 17
Views: 942

Re: Using 529 Stable Value Fund for non-college savings

The fraud issue is a good one to be aware of, so thanks for alerting us to that. We don't want to commit fraud. Fortunately, I did not commit fraud. What I actually did was the following. I opened a CO 529 with me as owner and my daughter as beneficiary (she is in college). I contributed $14K toward...
by Kevin M
Wed Dec 17, 2014 7:37 pm
 
Forum: Investing - Theory, News & General
Topic: Using 529 Stable Value Fund for non-college savings
Replies: 11
Views: 1611

TBM real return 1972-1982

Had TBM existed what would this have looked like from, say 1970 to 1984? ^ Morningstar doesn't adjust for inflation, unfortunately. We can use the total bond and inflation data from Portfolio Visualizer, which I believe basically is the same as the Simba backtest spreadsheet. For Total Bond, PV say...
by Kevin M
Wed Dec 17, 2014 4:33 pm
 
Forum: Investing - Help with Personal Investments
Topic: I'm an Irrational Bond Chicken Little
Replies: 32
Views: 2929

Yield curves and TBM returns part 2

I thought it would be interesting to look at Total Bond Market SEC yield along with the Treasury yield curves for the dates plotted in my previous reply. Since TBM has an average maturity of a little under 8 years, I added its SEC yield to the CMT yield curves between the 7 and 10 year maturities. h...
by Kevin M
Wed Dec 17, 2014 3:02 pm
 
Forum: Investing - Help with Personal Investments
Topic: I'm an Irrational Bond Chicken Little
Replies: 32
Views: 2929

Yield curves and TBM returns

Some posts above are somewhat misleading in relating particular interest rate changes to the performance of a fund like Total Bond Market Index fund (TBM). Changes in the Federal Funds Rate (FFR) or the 5-year Treasury in themselves are not relevant. What's relevant is the change in the overall yiel...
by Kevin M
Tue Dec 16, 2014 9:31 pm
 
Forum: Investing - Help with Personal Investments
Topic: I'm an Irrational Bond Chicken Little
Replies: 32
Views: 2929

Re: I'm an Irrational Bond Chicken Little

While I invest nearly half my assets in equities, I fear moving some of my fixed income assets from short-term/CDs to intermediate term. Then why do it? Starting about four years ago I started gradually moving my fixed income from bond funds and cash into 5-year to 7-year direct CDs. I only did thi...
by Kevin M
Sun Dec 14, 2014 6:50 pm
 
Forum: Investing - Help with Personal Investments
Topic: I'm an Irrational Bond Chicken Little
Replies: 32
Views: 2929

Re: New 401K choices...need help slicing

I would take advantage of one of the new funds. If you compare them on a growth chart, you'll see that Vanguard small-cap and mid-cap funds have very similar performance, especially compared to S&P 500, so personally I would use only one or the other. I would use the small-cap fund since it give...
by Kevin M
Sun Dec 14, 2014 5:57 pm
 
Forum: Investing - Help with Personal Investments
Topic: New 401K choices...need help slicing
Replies: 5
Views: 338

Re: Advice on Asset Allocation / What do I do to fix this?

I was looking into maybe using the Three Fund Portfolio but I don't know enough about it (and it seems a little scary having so little diversification). The three-fund portfolio is highly diversified, so this shouldn't scare you. As a matter of fact, the Vanguard Target Retirement funds consist of ...
by Kevin M
Sun Dec 14, 2014 4:15 pm
 
Forum: Investing - Help with Personal Investments
Topic: Advice on Asset Allocation / What do I do to fix this?
Replies: 22
Views: 1821

Re: Help with uninvested cash with large looming expenses

I hate having this much cash sitting around at a .9% interest rate, and that hate will go up over 2015 as I hit the $100k in cash mark. <snip> The problem is that I have these large, somewhat unknowable expenses hanging over my head--particularly the house <snip> Other than futzing around with CDs ...
by Kevin M
Sun Dec 14, 2014 2:46 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with uninvested cash with large looming expenses
Replies: 2
Views: 330

Re: Investing more when the market is down.

Yes, purposely holding cash out of the market <snip> has also been proven to decrease long term returns (so called "cash drag"). Couldn't we say the same thing about bonds, and call it "bond drag"? Holding any asset with lower expected returns is likely, but not certain, to decr...
by Kevin M
Sun Dec 14, 2014 1:55 pm
 
Forum: Investing - Theory, News & General
Topic: Investing more when the market is down.
Replies: 22
Views: 2292

Re: Building a new Excel spreadsheet

In a draft of my previous reply, I wrote some stuff about considering what you're actually calculating IRR for, but thought it was getting too complicated. However, it is important, so I'll mention it now. You can calculate IRR for one investment, one account, or your entire portfolio. For each, the...
by Kevin M
Sat Dec 13, 2014 2:51 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 2980

Re: Building a new Excel spreadsheet

I followed you right up to this point. Assuming my spreadsheet columns are: Date | Transaction Type | Shares | NAV | Value (Shares x NAV) | Current Value (Shares x current NAV) | Gain/Loss (Current Value - Value) The XIRR function has the Value column and the Date column as it's arguments. (And the...
by Kevin M
Fri Dec 12, 2014 8:51 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 2980

Re: Building a new Excel spreadsheet

For #2) Does it make a difference tracking this on a monthly versus quarterly basis? I guess I'm trying to accomplish #2 by first calculating each fund's performance then adding the results together to get a total portfolio performance. And by tracking the individual fund transactions (including fe...
by Kevin M
Fri Dec 12, 2014 3:05 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 2980

Re: Building a new Excel spreadsheet

I'm wondering why you want to do this. Don't your 401k and IRA custodians provide reporting capabilities that show you this already? If you want to do it anyway, then you could look at the transaction reports provided by your custodians, and just replicate what they are doing. For example, in lookin...
by Kevin M
Fri Dec 12, 2014 2:13 pm
 
Forum: Investing - Theory, News & General
Topic: Building a new Excel spreadsheet
Replies: 33
Views: 2980

Re: TurboTax '14 Deluxe (Desktop) Excludes Schedule D

To get the Schedule C, (for a sole proprietorship), one apparently must move up to the Home and Business version which, for Flagship customers, is $54.99 (for the Online version with the state income return at no further charge). An increase from prior years but not as bad as I first thought. Appar...
by Kevin M
Thu Dec 11, 2014 7:31 pm
 
Forum: Personal Finance (Not Investing)
Topic: TurboTax '14 Deluxe (Desktop) Excludes Schedule D
Replies: 140
Views: 16694

Re: TurboTax '14 Deluxe (Desktop) Excludes Schedule D

I had tremendous problems getting it to work. My browser (Chrome) seemed to be automatically signing me in to TurboTax but in a manner that confused things. On one TT screen it both presented me my TurboTax Advantage information AND told me I was not a member of TT Advantage. Worked fine for me usi...
by Kevin M
Thu Dec 11, 2014 1:46 pm
 
Forum: Personal Finance (Not Investing)
Topic: TurboTax '14 Deluxe (Desktop) Excludes Schedule D
Replies: 140
Views: 16694

Re: To Tilt or Not To Tilt, that's the question

Am I to understand (keep in mind I am new please), that a stock/bong split is more important than any tilts? Would they not be of the same importance? If anyone could help explain this point, it would be appreciated. Perhaps this will help: http://s26.postimg.org/qz1fju4e1/VTSMX_VIVAX_VBMFX.png Not...
by Kevin M
Wed Dec 10, 2014 2:39 pm
 
Forum: Investing - Theory, News & General
Topic: To Tilt or Not To Tilt, that's the question
Replies: 52
Views: 2400

Re: What's wrong with VTIAX?

Kevin, I have that behavioral gap or behavioral cog bias you are speaking about. I will search about it on Wiki...Recency Bias: I want to overcome this and listen to experienced investors. A good way to combat recency bias is to look at longer-term historical performance. That Callan periodic table...
by Kevin M
Tue Dec 09, 2014 4:23 pm
 
Forum: Investing - Theory, News & General
Topic: What's wrong with VTIAX?
Replies: 63
Views: 7429

Re: What's wrong with VTIAX?

Ten years is really not a very long time in stock market terms. I think it was in early 2009 that there was a point when long-term bonds had done better than stocks over the previous 30 years, but that probably was not a good reason to abandon stocks and put everything into long-term bonds. One of t...
by Kevin M
Tue Dec 09, 2014 3:56 pm
 
Forum: Investing - Theory, News & General
Topic: What's wrong with VTIAX?
Replies: 63
Views: 7429

Re: Harvey paper says re-balancing adds risk

Risk (aka volatility) is not constant over time, so rebalancing to a fixed policy allocation doesn't make sense and never made sense as a "risk management" technique: I think that for most investors the word "volatility" implies relatively large, short-term price movements. My i...
by Kevin M
Tue Dec 09, 2014 2:16 pm
 
Forum: Investing - Theory, News & General
Topic: Harvey paper says re-balancing adds risk
Replies: 73
Views: 4601

Re: Harvey paper says re-balancing adds risk

Stocks are actually more risky when they're going down, not less risky. I don't know when stocks are going down. I only know that they have gone down. I don't know what they'll do tomorrow, or even the next minute. Knowing that stocks are going down implies that I know that they will continue to go...
by Kevin M
Tue Dec 09, 2014 1:19 pm
 
Forum: Investing - Theory, News & General
Topic: Harvey paper says re-balancing adds risk
Replies: 73
Views: 4601

Re: Vanguard Turbo Tax prices anounced

And you are quite right that if I cannot toggle and look at the pdf as I go along instead of just before filing, that would not be good !! So a trivial nudge will get me to pay for the desktop version. Hint: give me a nudge. I feel very comfortable with Ttax which is why I am reluctant to try the o...
by Kevin M
Mon Dec 08, 2014 9:04 pm
 
Forum: Personal Finance (Not Investing)
Topic: Vanguard Turbo Tax prices anounced
Replies: 57
Views: 7753

Re: Question for bond experts about Treasury STRIPS

We discussed this recently in another thread. In that thread I included some charts to show what OP is talking about. Here are links to some of the replies on this specific topic: Yield Curve Investigations (charts of yields for stripped coupon, stripped interest, and regular coupon Treasuries) . Yi...
by Kevin M
Mon Dec 08, 2014 8:21 pm
 
Forum: Investing - Theory, News & General
Topic: Question for bond experts about Treasury STRIPS
Replies: 14
Views: 1596

Re: Graphing current credit spreads?

Scott, if you search for "spread" on the FRED site that you used for the two you found, you will find many more rate-spread data series.

Kevin
by Kevin M
Thu Dec 04, 2014 1:06 pm
 
Forum: Investing - Theory, News & General
Topic: Graphing current credit spreads?
Replies: 3
Views: 397

Re: Should I use margin to buy a balanced fund?

The annual SD of 1-year average FFR from 1954-2013 is 3.5% (with an arithmetic mean of 5.1%). I think that SD is too high to be used as a proxy for a risk-free rate with an SD of 0%, even for a holding period as short as one year. That is where you are wrong, the FFR is more or less 100% predictabl...
by Kevin M
Sun Nov 30, 2014 5:50 pm
 
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 510
Views: 56435

Re: Should I use margin to buy a balanced fund?

CAPM is designed to be a very short-term model. I don't think the CAPM theory specifies the length of the holding period, but just that there is a single holding period. However, I think the way it's typically used by academics and practitioners when analyzing historical data pretty much assumes 1-...
by Kevin M
Sun Nov 30, 2014 5:36 pm
 
Forum: Investing - Theory, News & General
Topic: Should I use margin to buy a balanced fund?
Replies: 510
Views: 56435
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