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Re: Are TIPS right for retired investors?

You are thinking about this backwards. If you buy a TIPS yielding 1%, you will get a 1% real return, no matter what inflation does, expected or unexpected. It is the nominal bonds that have inflation expectations built into them, and they will have either positive or negative real returns depending ...
by billyt
Thu Feb 13, 2014 3:58 pm
 
Forum: Investing - Theory, News & General
Topic: Are TIPS right for retired investors?
Replies: 64
Views: 4075

Re: Are TIPS right for retired investors?

Again. Equities are not bonds. There is no guarantee that equities will keep up with inflation, and some evidence that they will do poorly in high inflation. TIPS will give you a real return. If real rates rise, TIP fund NAV will temporarily fall, but you will earn more in the long run. Rising rates...
by billyt
Thu Feb 13, 2014 2:56 pm
 
Forum: Investing - Theory, News & General
Topic: Are TIPS right for retired investors?
Replies: 64
Views: 4075

Re: Are TIPS right for retired investors?

Why are you focusing on a single one month interval out of the whole chart? Look at the long term. TIPS do exactly what they say they will do, which is provide a real return. If real rates are low, TIPS will not do anything spectacular. If inflation takes off, you will slowly lose money in nominal b...
by billyt
Thu Feb 13, 2014 2:49 pm
 
Forum: Investing - Theory, News & General
Topic: Are TIPS right for retired investors?
Replies: 64
Views: 4075

Re: Are TIPS right for retired investors?

Bad idea. Equities are not bonds.
by billyt
Thu Feb 13, 2014 2:40 pm
 
Forum: Investing - Theory, News & General
Topic: Are TIPS right for retired investors?
Replies: 64
Views: 4075

Re: Are TIPS right for retired investors?

1) the charts are the actual (nominal) returns over the last ten years.

2) Sure, chose a price chart rather than a return chart.
by billyt
Thu Feb 13, 2014 11:18 am
 
Forum: Investing - Theory, News & General
Topic: Are TIPS right for retired investors?
Replies: 64
Views: 4075

Re: Bonds today

I looked up the fund you are referring to on the Blackrock website and found the following cumulative returns:

6 mo 1%
1 yr -3%
3 yr 14%
5 yr 15%

What are you complaining about?
by billyt
Wed Feb 12, 2014 3:39 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds today
Replies: 42
Views: 2737

Re: Bonds today

I think that the bond funds NAV may be 8% lower than its peak, but the loss in terms of total return is much less.
by billyt
Wed Feb 12, 2014 1:15 pm
 
Forum: Investing - Theory, News & General
Topic: Bonds today
Replies: 42
Views: 2737

Re: Bonds today

The total return on bond funds over the long term (1 to 2x duration) comes almost entirely from the interest. Almost none of the total return comes from price changes. Therefore, rising rates will increase the return of bond funds in the long run. Both the historical record and the first principles ...
by billyt
Wed Feb 12, 2014 9:41 am
 
Forum: Investing - Theory, News & General
Topic: Bonds today
Replies: 42
Views: 2737

Re: Riding the yield curve, in action

Holding to maturity clearly makes the case of the ladder worse.
by billyt
Sun Feb 09, 2014 1:37 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 19
Views: 1582

Re: Attempting to understand bonds

No, a bonds value will increase as it slides down the yield curve in a positive (normal) yield curve environment. The yield curve prices in future rate increases based on the market consensus. This is why shortening duration in anticipation of rising rates is likely to backfire. Do you know more tha...
by billyt
Sun Feb 09, 2014 1:36 pm
 
Forum: Investing - Theory, News & General
Topic: Attempting to understand bonds
Replies: 2
Views: 273

Re: Riding the yield curve, in action

In a positive yield curve environment, your returns are reduced if you hold to maturity. Why hold a Treasury for those last 2 or 3 years earning next to nothing when you can sell at a premium and reinvest at higher rates in longer treasurys or CDs? Bond fund mangers (and the indexes that follow thei...
by billyt
Sun Feb 09, 2014 1:32 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 19
Views: 1582

Re: Riding the yield curve, in action

That's right The Dan. Rolling your own bond ladder and holding to maturity reduces your returns. You are better off with a low cost fund.
by billyt
Sun Feb 09, 2014 12:50 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 19
Views: 1582

Re: Bond returns

OK, you are asking about the effect on your cash flow in a rising rate environment. Immediately after an instantaneous rate increase, your NAV will fall but your monthly cash flow will stay more or less the same. Gradually, you cash flow will increase. If rates continue to rise, your cash flow will ...
by billyt
Sun Feb 09, 2014 8:47 am
 
Forum: Investing - Theory, News & General
Topic: Bond returns
Replies: 4
Views: 626

Re: Bond returns

If interest rates rise, bond fund returns will increase. The price for better returns is a temporary hit to the NAV.
by billyt
Sat Feb 08, 2014 8:12 pm
 
Forum: Investing - Theory, News & General
Topic: Bond returns
Replies: 4
Views: 626

Re: Riding the yield curve, in action

It's so ridiculous really. No one wants to hear the truth, do the math, or accept factual information.

Sadly, this post will sink like a stone.

While "Why own bonds at all?" will be around for days.
by billyt
Sat Feb 08, 2014 8:08 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 19
Views: 1582

Re: Riding the yield curve, in action

odg:
No one wants to hear this. It would shake their obsession with bondmageddon and 100% stock portfolios!
by billyt
Sat Feb 08, 2014 6:30 pm
 
Forum: Investing - Theory, News & General
Topic: Riding the yield curve, in action
Replies: 19
Views: 1582

Re: Why Own Bonds at All?

You are wildly overstating your case. Maximum possibly remaining principal is a very unlikely outcome (1/# of runs). Look at the average remaining principal.
by billyt
Sat Feb 08, 2014 9:37 am
 
Forum: Investing - Theory, News & General
Topic: Why Own Bonds at All?
Replies: 492
Views: 28283

Re: Are Individual Bonds Right for You?

Vanguard does indeed have a Treasury index fund (VSIGX) that tracks The Barclays U.S. 3-10 Year Government Float Adjusted Index. It does not include TIPS, so you would need another fund for that.

What made you think Vanguard had no Treasury index?
by billyt
Thu Feb 06, 2014 5:27 pm
 
Forum: Investing - Theory, News & General
Topic: Are Individual Bonds Right for You?
Replies: 57
Views: 2803

Re: Are Individual Bonds Right for You?

I don't understand why there is any discussion at all about funds versus ladders. Why anyone would think they could do better than the major index funds by essentially running their own bond fund is beyond me.
by billyt
Thu Feb 06, 2014 4:03 pm
 
Forum: Investing - Theory, News & General
Topic: Are Individual Bonds Right for You?
Replies: 57
Views: 2803

Re: Are Individual Bonds Right for You?

Any transfers from my bank to Vanguard appear in my Vanguard account at least a day or two before they are deducted from my bank account (free float!). I do not see how individual bonds are any more or less liquid than an FDIC insured account or a bond fund. Selling bonds in a crisis are sure to get...
by billyt
Thu Feb 06, 2014 3:22 pm
 
Forum: Investing - Theory, News & General
Topic: Are Individual Bonds Right for You?
Replies: 57
Views: 2803

Re: Sleeping With Bonds!!!!!

Dandy:
If large bond fund outflows had any impact at all on the fund performance, then bond index funds will fail to track their index.

We had huge bond fund outflows last year during the panic and absolutely no sign of any bond index fund tracking error.

You are kidding yourself.
by billyt
Thu Feb 06, 2014 2:58 pm
 
Forum: Investing - Theory, News & General
Topic: Sleeping With Bonds!!!!!
Replies: 74
Views: 7243

Re: Are Individual Bonds Right for You?

What kind of a crazy savings account do you have that doesn't offer instant access to your cash?
by billyt
Thu Feb 06, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Are Individual Bonds Right for You?
Replies: 57
Views: 2803

Re: Are Individual Bonds Right for You?

If you plan to buy some bonds, hold to maturity, sell them and never buy another bond, then that is a special case of declining duration and different from a fund. However, if you are going to buy more bonds when the bond matures then you have a rolling bond ladder, which is in every way identical t...
by billyt
Wed Feb 05, 2014 2:20 pm
 
Forum: Investing - Theory, News & General
Topic: Are Individual Bonds Right for You?
Replies: 57
Views: 2803

Re: Sleeping With Bonds!!!!!

The Great Boglehead Bond Panic of 2013 clearly showed how irrational some folks are about their bond portfolio. The level of distress and dysfunction was incredible. Now, even after the fact, some cannot seem to come to terms with the sub-optimal results of trying to time the bond market, even when ...
by billyt
Tue Feb 04, 2014 3:25 pm
 
Forum: Investing - Theory, News & General
Topic: Sleeping With Bonds!!!!!
Replies: 74
Views: 7243

Re: The PenFed Craze

Given that PenFed (and all their competitors) ought to be able to borrow money at much much less than 3% these days, this has to be a money losing proposition for them. The only possible reason to do this is for promotion. They are trying to grow their business and hope to make more money on other s...
by billyt
Wed Jan 22, 2014 8:37 am
 
Forum: Investing - Theory, News & General
Topic: The PenFed Craze
Replies: 32
Views: 4723

Re: Do You Consider the Opportunity Cost of Owning a Home?

Yup, everybody thinks that they are above average in all ways.
by billyt
Wed Jan 22, 2014 8:30 am
 
Forum: Personal Finance (Not Investing)
Topic: Do You Consider the Opportunity Cost of Owning a Home?
Replies: 54
Views: 3212

Re: Impending Bond Crash - What NOT to do!

The QE taper is well known by everyone and is fully priced into bonds. The so called 30 year bond bull market is simply bull. It refers to bond prices, which have nothing to do with bond (or bond fund) returns. Interest rates, the primary driver of bond (and bond fund) returns have been falling for ...
by billyt
Thu Jan 16, 2014 12:54 pm
 
Forum: Investing - Theory, News & General
Topic: Impending Bond Crash - What NOT to do!
Replies: 50
Views: 6359

Re: Fixed Account vs. Short or Intermediate Bond Funds

You have missed the boat on this one. The end of QE was telegraphed last year and in now fully priced into the bond market. In the last few months, short term rates are beginning to rise in anticipation of the end of zero Fed rate. Longer term rates have eased a bit.
by billyt
Thu Jan 16, 2014 9:22 am
 
Forum: Investing - Help with Personal Investments
Topic: Fixed Account vs. Short or Intermediate Bond Funds
Replies: 4
Views: 429

Re: Bond funds are not riskier than bond ladders

jdb: The only one you are kidding is yourself. The coupon is not the return, because you have not marked your bonds to market. You need to consider what you could sell the bond for today (which is higher than par) and see what your real rate of return of those coupons is. You are only earning a frac...
by billyt
Wed Jan 15, 2014 4:21 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6389

Re: The Anti-Target Date Retirement Strategy

Then the strategy would have worked perfectly. You would have avoided selling stock when they were down or going nowhere, and now they have nearly doubled since 2010, and your portfolio now only has to last 20 years rather than 30 (in round numbers). You would have avoided the sequence of return ris...
by billyt
Wed Jan 15, 2014 4:16 pm
 
Forum: Investing - Help with Personal Investments
Topic: The Anti-Target Date Retirement Strategy
Replies: 48
Views: 3668

Re: Bond funds are not riskier than bond ladders

Inflation protection has negligible value over such a short term. Trading costs are a good reason to prefer a fund over a ladder. Most people that are using hold-to-maturity ladders seem to think they are beating the market somehow. They are just shooting themselves in the foot by reducing their own...
by billyt
Wed Jan 15, 2014 1:38 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6389

Re: Bond funds are not riskier than bond ladders

No, selling your bond before maturity and investing the proceeding in a savings account at 1% is less risky, not more risky, and will improve your return. Give today's yield curve you are earning next to nothing in those last few years.
by billyt
Wed Jan 15, 2014 1:16 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6389

Re: Bond funds are not riskier than bond ladders

The point is that every bond that is held to maturity is earning less in the last few years than you can earn in a savings account. Selling a few years before maturity putting into a savings account (or reinvesting at a longer term and higher rate) will leave you with more money in your pocket. Hold...
by billyt
Wed Jan 15, 2014 12:59 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6389

Re: AA in Retirement: Jane Bryant Quinn

Indeed, we don't know the future. That doesn't mean it is not a good idea to lower your stock allocation for the period just before and after retirement to try and protect against sequence of return risk. I agree that it is not that stocks are increased later in life (absolute amount is about the sa...
by billyt
Tue Jan 14, 2014 9:14 pm
 
Forum: Investing - Theory, News & General
Topic: AA in Retirement: Jane Bryant Quinn
Replies: 46
Views: 3455

Re: Bond funds are not riskier than bond ladders

The only thing holding a bond to maturity does is to diminish your returns. Why would you hold a treasury for the last 2 years earning about 0.4% when you could earn 1% in a savings account?
by billyt
Tue Jan 14, 2014 6:04 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6389

Re: Bond funds are not riskier than bond ladders

In 2008 we went through one of the wost financial crises ever. Liquidity issues were rampant. Furthermore, there was a huge exodus from bond funds last year. Can anyone show hard evidence that those that did not sell bond positions had permanent losses? If not, I think this idea that of an NAV colla...
by billyt
Tue Jan 14, 2014 4:41 pm
 
Forum: Investing - Theory, News & General
Topic: Bond funds are not riskier than bond ladders
Replies: 120
Views: 6389

Re: AA in Retirement: Jane Bryant Quinn

OK, just thinking out loud here. I don't think that going to 100% stocks in your old age is wise, unless a 50% or more loss will not affect your lifestyle. However, there is a very good reason to have your lowest allocation to stocks in your 60's near retirement age, because this is when you are mos...
by billyt
Tue Jan 14, 2014 3:38 pm
 
Forum: Investing - Theory, News & General
Topic: AA in Retirement: Jane Bryant Quinn
Replies: 46
Views: 3455

Re: AA in Retirement: Jane Bryant Quinn

This is pretty much my plan. Close to retirement now. I have enough 'safe' assets to get me from retirement to age 70, when I will collect SS. This maximizes my inflation adjustment income streams after 70. I will also do some conversions to Roth in those low income years. I also have safe money set...
by billyt
Tue Jan 14, 2014 12:21 pm
 
Forum: Investing - Theory, News & General
Topic: AA in Retirement: Jane Bryant Quinn
Replies: 46
Views: 3455

Re: Real estate and rising sea levels

Rather than make predictions, lets talk about what has already happened. Sea level has risen on the order of a foot over the last 100 years for many place along the East Coast (I am not so familiar with the West Coast). As a result, flooding frequency has increased and many flood zone maps have rece...
by billyt
Tue Jan 14, 2014 8:01 am
 
Forum: Personal Finance (Not Investing)
Topic: Real estate and rising sea levels
Replies: 49
Views: 2888

Re: Callan periodic table of investments for 2013

1994 and 1999 were both negative years for bonds as well. 1994 was slightly worse than 1013. Note that in the year following negative bond returns, bonds returned double digits.
by billyt
Sun Jan 12, 2014 7:50 am
 
Forum: Investing - Help with Personal Investments
Topic: Callan periodic table of investments for 2013
Replies: 12
Views: 1628

Re: How to weather the upcoming bond crash in my 401k

I've got news for you.

You missed the big bond crash.

It happened last year.
by billyt
Fri Jan 10, 2014 9:02 am
 
Forum: Investing - Help with Personal Investments
Topic: How to weather the upcoming bond crash in my 401k
Replies: 81
Views: 5728

Re: Jack Bogle: We Need to Fix the Bond Index

It can't be a "secret sauce", as they are very transparent about what they invest in: intermediate term corporate bonds and large cap value stocks with good dividends.
by billyt
Tue Jan 07, 2014 5:24 pm
 
Forum: Investing - Theory, News & General
Topic: Jack Bogle: We Need to Fix the Bond Index
Replies: 77
Views: 7152

Re: Quantitative easing - A question

First of all, QE exit has already started as of this month, with the Fed reducing purchases $10b. Anticipation is a further $10b reduction every month, with the full exit from QE by the end of the year. The Fed plans to hold their inventory to maturity. All this is 'known' information and fully pric...
by billyt
Mon Jan 06, 2014 3:36 pm
 
Forum: Investing - Theory, News & General
Topic: Quantitative easing - A question
Replies: 17
Views: 971

Re: Rates up, so shift intermediate bonds to short-term bond

If you want to shift duration, you need to go to short term before the rate increase and shift back to intermediate term after the rate increase. So far, you have missed a substantial rate increase. Market timing almost never works consistently. You might get lucky once or twice, or you might not. I...
by billyt
Mon Jan 06, 2014 9:17 am
 
Forum: Investing - Help with Personal Investments
Topic: Rates up, so shift intermediate bonds to short-term bonds?
Replies: 8
Views: 1085

Re: Bond Rising Rate Effect - Definitive Study

Yes, munr, and what do you think the 5 year returns of the short vs. intermediate term funds will be 5 years from now? (hint: most of the return comes from the interest). The fear of NAV fluctuations in bond funds is wholly irrational. All you are doing by switching to a short term fund is reducing ...
by billyt
Sat Jan 04, 2014 7:40 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Rising Rate Effect - Definitive Study
Replies: 28
Views: 1671

Re: NAV Erosion in Bond Funds

Yes, and in this crystal clear case of NAV decline, the total return has been quite healthy. As I said, no impact at all on total return.
by billyt
Sat Jan 04, 2014 7:33 pm
 
Forum: Investing - Theory, News & General
Topic: NAV Erosion in Bond Funds
Replies: 23
Views: 1960

Re: Bond Rising Rate Effect - Definitive Study

Your fears are not supported by the facts. Interest rates rose substantially last year from historic lows. Intermediate bond funds lost 2-3% for the most part, about 1 years worth of current yields.
by billyt
Sat Jan 04, 2014 7:29 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Rising Rate Effect - Definitive Study
Replies: 28
Views: 1671

Re: Bond Rising Rate Effect - Definitive Study

Very nice to see the increase in interest rates this year, which will increase the returns bond funds going forward. There is unequivocally not question about how to manage a bond portfolio, because the long return of bond funds (or portfolios) depends entirely on the level of interest rates. In oth...
by billyt
Sat Jan 04, 2014 4:00 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Rising Rate Effect - Definitive Study
Replies: 28
Views: 1671

Re: Bond Rising Rate Effect - Definitive Study

Yes, and the duration of your bond fund should be matched to your circumstances.
by billyt
Sat Jan 04, 2014 3:24 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Rising Rate Effect - Definitive Study
Replies: 28
Views: 1671

Re: Bond Rising Rate Effect - Definitive Study

I am surprised that some are so concerned by what happens in the short term. What happened to stay-the-course? It is clear that returns of bond funds in the long run are driven entirely by the level of interest rates. The direction of interest rates has no effect at all, except in the short term. If...
by billyt
Sat Jan 04, 2014 2:53 pm
 
Forum: Investing - Theory, News & General
Topic: Bond Rising Rate Effect - Definitive Study
Replies: 28
Views: 1671
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