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Re: Is the Aggregate Index Too Heavy in Treasuries?

Has maturity increased? Duration increases as interest rates decrease, so the drop in interest rates could be enough to account for the duration change. Looking at the long-term trends (chart below), the duration of the Barclays U.S. Aggregate Index was fairly constant at around 4.5 years for the t...
by richard
Fri Aug 22, 2014 9:49 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 45
Views: 1832

Re: Is the Aggregate Index Too Heavy in Treasuries?

What do you mean by risk? How are you quantifying it? Fair question. For me it's the "risk creep" referred to earlier in this post (ie moving proportion of Tresaury vs Corporate) combined with the convexity risk of MBS. Just seems to me that if I set the ratio of Treasury to Corporate, I'...
by richard
Fri Aug 22, 2014 9:43 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 45
Views: 1832

Re: Is the Aggregate Index Too Heavy in Treasuries?

Simplegift, the historical graph you posted is fantastic, many thanks. I've been struggling with this question for some time as I approach retirement. In addition to the significant variability over time, I'm actually more disturbed by what appears to be a long term trend to significantly more MBS ...
by richard
Fri Aug 22, 2014 7:54 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 45
Views: 1832

Re: Is the Aggregate Index Too Heavy in Treasuries?

<> But meanwhile, Doc, in an interesting thread entitled Vanguard Bond funds Style change , pointed out that due to gradually increasing duration, Total Bond and some other "intermediate"-term bond funds have crossed a boundary and has moved from "moderate" to "extensive&qu...
by richard
Fri Aug 22, 2014 7:51 am
 
Forum: Investing - Theory, News & General
Topic: Is the Aggregate Index Too Heavy in Treasuries?
Replies: 45
Views: 1832

Re: [live off dividends?] How the rich stay/get richer??

The rich are not rich because of dividends. It's because they work harder and are willing to take more risks than others. Perhaps a little luck helps, but it would be an anomaly for someone to make $2 million dollars one year and then drop everything to sit back and collect dividends. JT Having the...
by richard
Wed Aug 20, 2014 12:07 pm
 
Forum: Investing - Theory, News & General
Topic: [live off dividends?] How the rich stay/get richer??
Replies: 62
Views: 4802

Re: Which countries really provide health care to all citize

<>The video Richard references <> I would leave you with a last point, an educational one about economics. The Incidental Economist is the 'go to' blog for US healthcare information. Austin Frakt, a health economist, is a relative of one of the Mods here. I encourage everyone to read it.<> The pres...
by richard
Wed Aug 20, 2014 11:32 am
 
Forum: Personal Finance (Not Investing)
Topic: Which countries really provide health care to all citizens?
Replies: 12
Views: 1454

Re: How the rich stay/get richer??

What matters is that the spending is significantly less than the total growth per year. It makes no difference whether that growth comes from dividends or appreciation, or both. Agreed. The dividends vs principal is a red herring. The hypothetical rich guy could be invested in stocks that pay no di...
by richard
Wed Aug 20, 2014 10:15 am
 
Forum: Investing - Theory, News & General
Topic: [live off dividends?] How the rich stay/get richer??
Replies: 62
Views: 4802

Re: [live off dividends?] How the rich stay/get richer??

The rich are not rich because of dividends. It's because they work harder and are willing to take more risks than others. Perhaps a little luck helps, but it would be an anomaly for someone to make $2 million dollars one year and then drop everything to sit back and collect dividends. JT Having the...
by richard
Wed Aug 20, 2014 10:13 am
 
Forum: Investing - Theory, News & General
Topic: [live off dividends?] How the rich stay/get richer??
Replies: 62
Views: 4802

Re: Implied future real interest rates

The current market forecast of real interest rates is consistent with a 'Secular Stagnation Theory'. The title of the linked article is "Secular Stagnation, Meet Data". <>It's also consistent with a 'Quantitative Easing' theory that the Fed was successful in forcing down interest rates at...
by richard
Wed Aug 20, 2014 9:50 am
 
Forum: Investing - Theory, News & General
Topic: Implied future real interest rates
Replies: 7
Views: 857

Re: Shiller on Lofty Market Elevations

A very good summary of issues surrounding high (compared to history) PE10 is at http://fatasmihov.blogspot.de/2014/08/irrational-exuberance-meets-secular.html From that summary, while people may disagree on whether a high PE is supported by current conditions, everyone seems to agree that the fact ...
by richard
Tue Aug 19, 2014 8:11 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller on Lofty Market Elevations
Replies: 55
Views: 4804

Re: Shiller on Lofty Market Elevations

A very good summary of issues surrounding high (compared to history) PE10 is at http://fatasmihov.blogspot.de/2014/08/i ... cular.html
by richard
Tue Aug 19, 2014 5:39 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller on Lofty Market Elevations
Replies: 55
Views: 4804

Re: Shiller on Lofty Market Elevations

One scenario is that stocks won't crash, but rather will plod along as inflation heats up at some point in the future. You have to ask, where is that inflation going to come from? Worker wages have been flat or slightly declining for 30 years. The average household savings rate, which was up to 8% ...
by richard
Tue Aug 19, 2014 5:38 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller on Lofty Market Elevations
Replies: 55
Views: 4804

Implied future real interest rates

The first graph shows the instantaneous forward real interest rate -- basically, what the market thinks the cost of overnight funding should be in real terms at some future date -- as derived from TIPS yields. There are more precise ways to do this, but it's close enough for a blog post. http://s9....
by richard
Mon Aug 18, 2014 7:34 am
 
Forum: Investing - Theory, News & General
Topic: Implied future real interest rates
Replies: 7
Views: 857

Re: Shiller on Lofty Market Elevations

I link to a long disagreement with Shiller in viewtopic.php?f=10&t=145010&newpost=2158429
by richard
Sun Aug 17, 2014 5:38 pm
 
Forum: Investing - Theory, News & General
Topic: Shiller on Lofty Market Elevations
Replies: 55
Views: 4804

Response to Shiller's "lofty" CAPE - where should it be?

The second quote is particularly interesting - what should be a normal p/e? An extremely naive take would be to assume the efficient market hypothesis: that the marginal trader and the marginal firm know what they are doing, and that the margin the earnings of the companies in the index are equally ...
by richard
Sun Aug 17, 2014 3:28 pm
 
Forum: Investing - Theory, News & General
Topic: Response to Shiller's "lofty" CAPE - where should it be?
Replies: 3
Views: 817

Re: Strategic Default

The only thing about the moral issue is that businesses and wealthy people don't usually have moral issues with these questions. It's a deal gone south and you operate under the laws as written. Others may disagree and I understand that too. It's much easier to have moral issues with things that hu...
by richard
Fri Aug 15, 2014 10:58 am
 
Forum: Personal Finance (Not Investing)
Topic: Strategic Default [on a property]
Replies: 42
Views: 3034

Re: Average investor even underperforms cash

If the "average investor" consistently trails the market, that must mean another group consistently beats the market.
by richard
Thu Aug 14, 2014 10:16 am
 
Forum: Investing - Theory, News & General
Topic: Average investor even underperforms cash
Replies: 8
Views: 1285

Re: Left Tail Smackdown*: Larry vs. Permanent Portfolio

I don't seem to have any trouble ignoring tracking error, and my portfolio is REALLY far from any "conventional" one, even including the PP as "conventional". So I guess I must just be weird. :oops: For tracking error to be an issue, you have to track both your own portfolio and...
by richard
Wed Aug 13, 2014 8:43 am
 
Forum: Investing - Theory, News & General
Topic: Left Tail Smackdown*: Larry vs. Permanent Portfolio
Replies: 15
Views: 2396

Re: Left Tail Smackdown*: Larry vs. Permanent Portfolio

I don't seem to have any trouble ignoring tracking error, and my portfolio is REALLY far from any "conventional" one, even including the PP as "conventional". So I guess I must just be weird. :oops: For tracking error to be an issue, you have to track both your own portfolio and...
by richard
Tue Aug 12, 2014 1:00 pm
 
Forum: Investing - Theory, News & General
Topic: Left Tail Smackdown*: Larry vs. Permanent Portfolio
Replies: 15
Views: 2396

Re: Poll: What's the name of Argentina's stock market?

<>But what does this have to do with what weight to assign to Argentina relative to, say, China?<> The name of the stock market is rather low on the list of things I'd regard as important in considering its economy or markets. Much more important information would include the current bond default f...
by richard
Sat Aug 09, 2014 8:47 am
 
Forum: Investing - Theory, News & General
Topic: Poll: What's the name of Argentina's stock market?
Replies: 37
Views: 2305

Re: Expected REIT (dividend) return

There's no way to know.

We don't know the future dividend rate or the future reinvestment price or if VNQ will do better or worse the VYM.

You could run calculations based on current dividend rates and prices, but that would be essentially useless for planning.
by richard
Fri Aug 08, 2014 3:33 pm
 
Forum: Investing - Help with Personal Investments
Topic: Expected REIT (dividend) return
Replies: 9
Views: 699

Re: Volatility: Oh how I love thee.

[assume bond prices stay level when stocks start dropping). In this case, stocks need to drop by 18.21% before rebalancing is triggered. any long-term benefit. - DDB ddb, Great calculations !! At first I thought, what the heck is he talking about?? How can it be so much (18.21%). Then I did the mat...
by richard
Fri Aug 08, 2014 7:33 am
 
Forum: Investing - Theory, News & General
Topic: Volatility: Oh how I love thee.
Replies: 44
Views: 3062

Re: Finding Smart Beta in the Factor Zoo

The paper includes a good list of things to consider. Remember these are evidence, not conclusive. Summarizing from the studies cited above, the following set of characteristics would constitute evidence of an actual factor: 1. The factor was discovered many decades ago; it has survived numerous dat...
by richard
Thu Aug 07, 2014 7:30 am
 
Forum: Investing - Theory, News & General
Topic: Finding Smart Beta in the Factor Zoo
Replies: 21
Views: 1231

Re: AARP: The Great Pension Sell-Off

That's a funny line, but I assume you know that people today live longer than they did 20 years ago, so using a 20 year old table of life expectancies is to the advantage of one side of the equation and to the disadvantage of the other. I am sure you are a fair minded person and wouldn't want to tr...
by richard
Tue Aug 05, 2014 3:10 pm
 
Forum: Investing - Theory, News & General
Topic: AARP: The Great Pension Sell-Off
Replies: 30
Views: 3579

Re: Scott Burns Blog, Is inflation Coming Back?

All spending is paid to someone. Put another way, on an aggregate level, spending equals income. Isn't more income a good thing? Lower real interest rates are good for the economy. The Fed has a hard time lowering nominal interest rates below zero, but if inflation is higher, zero nominal interest r...
by richard
Tue Aug 05, 2014 2:51 pm
 
Forum: Personal Finance (Not Investing)
Topic: Scott Burns Blog, Is inflation Coming Back?
Replies: 7
Views: 915

Re: What actions to take in a stock market crash?

has everyone forgotten the famous PLAN B? I was wondering the same thing. The answer seems to be "yes". If I understood correctly the purpose of Plan B, it is not for Bogleheads (that did their homework); it's for people that got their asset allocation wrong: http://www.bogleheads.org/for...
by richard
Mon Aug 04, 2014 8:02 pm
 
Forum: Investing - Theory, News & General
Topic: What actions to take in a stock market crash?
Replies: 85
Views: 5392

Re: What actions to take in a stock market crash?

4ransom wrote:has everyone forgotten the famous PLAN B?

I was wondering the same thing. The answer seems to be "yes".
by richard
Mon Aug 04, 2014 7:13 pm
 
Forum: Investing - Theory, News & General
Topic: What actions to take in a stock market crash?
Replies: 85
Views: 5392

Re: Arnott's/RAFI 10 year 'expected' returns

<>I think there's some cognitive dissonance going on here re: what the term "free lunch" actually means. I for one certainly don't equate an asset class of relatively attractive valuation and related risk/return profile as representing a "free lunch," not when the valuation is r...
by richard
Sun Aug 03, 2014 11:58 am
 
Forum: Investing - Theory, News & General
Topic: Arnott's/RAFI 10 year 'expected' returns
Replies: 78
Views: 4662

Re: Arnott's/RAFI 10 year 'expected' returns

<>Personally, I think a better approach is to consider how much risk you can take or are willing to take. THAT sets your AA. That then sets some expected return - expect on the low side to be cautious, but not world record low (could be refined with current valuations, but if you are already conser...
by richard
Sun Aug 03, 2014 11:48 am
 
Forum: Investing - Theory, News & General
Topic: Arnott's/RAFI 10 year 'expected' returns
Replies: 78
Views: 4662

Re: Reliability of stock data prior to 1939?

The first state law regulating securities fraud was in 1911. The main federal regulatory framework was adopted in the 1933 and 1934. Is there any good reason to believe securities data before these dates was reliable? p/e ratios may be the most used metric. Not only were reported earnings often frau...
by richard
Sun Aug 03, 2014 10:52 am
 
Forum: Investing - Theory, News & General
Topic: Reliability of stock data prior to 1939?
Replies: 14
Views: 855

Backtesting

Interesting summary: • Most firms and portfolio managers rely on backtests (or historical simulations of performance) to allocate capital to investment strategies. • After trying only 7 strategy configurations, a researcher is expected to identify at least one 2-year long backtest with an annualized...
by richard
Sun Aug 03, 2014 10:12 am
 
Forum: Investing - Theory, News & General
Topic: Backtesting
Replies: 1
Views: 255

Re: MOM faltering? [Momentum]

You can believe that it's very hard to beat the markets and that, due to their legal characteristics, stocks are riskier than bonds. From that you can get to cap weighted allocation as a starting point and a stock/bond allocation that can be moved towards risk or safety. Yes, but your starting assu...
by richard
Sat Aug 02, 2014 8:06 pm
 
Forum: Investing - Theory, News & General
Topic: MOM faltering? [Momentum]
Replies: 94
Views: 6129

Re: Arnott's/RAFI 10 year 'expected' returns

<>Personally, I think a better approach is to consider how much risk you can take or are willing to take. THAT sets your AA. That then sets some expected return - expect on the low side to be cautious, but not world record low (could be refined with current valuations, but if you are already conser...
by richard
Sat Aug 02, 2014 7:40 pm
 
Forum: Investing - Theory, News & General
Topic: Arnott's/RAFI 10 year 'expected' returns
Replies: 78
Views: 4662

Re: MOM faltering? [Momentum]

<>How can you believe that asset allocation between equity and fixed income even matters at all and not acknowledge that the factor research is in fact the very same research and data that explains why you are even talking about an equity/fixed income allocation to begin with! It is certainly mind ...
by richard
Sat Aug 02, 2014 5:41 am
 
Forum: Investing - Theory, News & General
Topic: MOM faltering? [Momentum]
Replies: 94
Views: 6129

Re: Market not interested in inflation protection?

The Fed and other major central banks want to keep inflation low and have the power to do so (Volcker is probably the most familiar example). Recent history shows they are willing to endure slow growth, high unemployment and possible debt crises in order to pursue this goal. This might influence the...
by richard
Thu Jul 31, 2014 2:27 pm
 
Forum: Investing - Theory, News & General
Topic: Market not interested in inflation protection?
Replies: 32
Views: 2251

Re: Medicaid look-back

I suppose the question is whether the Federal five-year look-back provision applies to in-home care. I realize there are also state issues that have to be checked. I haven't found anything that says the five-year provision applies, but I haven't found anything that clearly says it doesn't. BTW, this...
by richard
Thu Jul 31, 2014 1:45 pm
 
Forum: Personal Finance (Not Investing)
Topic: Medicaid look-back
Replies: 9
Views: 1029

Medicaid look-back

Does the Medicaid five-year look back on asset transfers apply only to nursing home eligibility or does it apply generally, including to home care eligibility?
by richard
Thu Jul 31, 2014 12:07 pm
 
Forum: Personal Finance (Not Investing)
Topic: Medicaid look-back
Replies: 9
Views: 1029

Re: MOM faltering? [Momentum]

If risk is always rewarded if you're patient enough, then it's not really risk. I disagree. Define "patient enough" - if there is uncertainty in the required time holding then that is a risk in of itself. Secondly, being "patient" implies your investment is effectively illiquid ...
by richard
Thu Jul 31, 2014 9:09 am
 
Forum: Investing - Theory, News & General
Topic: MOM faltering? [Momentum]
Replies: 94
Views: 6129

Re: MOM faltering? [Momentum]

<>Do we believe that risk and reward in financial markets are positively correlated or negatively correlated over that long term.<> What's the underlying economic risk for MOM? The possibility of underperformance or loss does not really count as a risk, else everything would be a risk. The usual fo...
by richard
Thu Jul 31, 2014 6:48 am
 
Forum: Investing - Theory, News & General
Topic: MOM faltering? [Momentum]
Replies: 94
Views: 6129

PE10

Earlier this year and during much of last year, I’d taken the Cyclically Adjusted Price-Earnings ratio to task for various reasons, most notably the fact that it didn’t allow for accounting changes (GAAP losses are recorded differently), structural changes in our economy (are we all still farmers?)...
by richard
Wed Jul 30, 2014 10:54 am
 
Forum: Investing - Theory, News & General
Topic: PE10
Replies: 13
Views: 1349

Re: Help with a new $5m portfolio for an old lady

Is the portfolio all taxable? If so, you might consider munis rather than taxable bonds. If not, is it IRA or Roth?

Does the $100k in spending include taxes?
by richard
Tue Jul 29, 2014 5:43 pm
 
Forum: Investing - Help with Personal Investments
Topic: Help with a new $5m portfolio for an old lady
Replies: 59
Views: 4467

Re: Do Bogleheads Feel Wealthier?

The effect of wealth in spending has been the subject of much study. Here's a popular paper by Case, Quigley and Shiller: We examine the link between increases in housing wealth, financial wealth, and consumer spending. We rely upon a panel of 14 countries observed annually for various periods durin...
by richard
Mon Jul 28, 2014 12:59 pm
 
Forum: Personal Finance (Not Investing)
Topic: Do Bogleheads Feel Wealthier?
Replies: 57
Views: 4641

Re: Make Income the Outcome

<snip>Whether or not a more conservative portfolio is the most appropriate way to ensure a desired income stream is still open to question. We actually know that if the wanted withdrawal rate is high enough and the portfolio too conservative, that the outcome is disaster. The problem is that we als...
by richard
Sat Jul 26, 2014 7:09 am
 
Forum: Investing - Theory, News & General
Topic: Make Income the Outcome
Replies: 49
Views: 3922

Re: Make Income the Outcome

<snip>But a problem with those income numbers is that they are projections that one keeps the status quo of contributions until full retirement age. The numbers do not show what one's income would be if they stopped contributing now. Perhaps because it would be too depressing. For social security, ...
by richard
Sat Jul 26, 2014 7:02 am
 
Forum: Investing - Theory, News & General
Topic: Make Income the Outcome
Replies: 49
Views: 3922

Re: How to interpret the bond news

Ignore the article. It's pure financial porn. Notice how the article does not actually quote any Fed officials. QE was supposed to have been suppressing interest rates. In fact, rates have been declining as QE is coming to an end. Fed remarks are very widely disseminated and analyzed. The market is ...
by richard
Fri Jul 25, 2014 10:09 am
 
Forum: Investing - Help with Personal Investments
Topic: How to interpret the bond news
Replies: 5
Views: 800

Re: Profiting from Unprofitable Companies

...We have 30 years of out of sample real-world performance of DFA's attempt at a fund using a single strategy that looked good over the historical back-testing, but the out-performance certainly wasn't persistent... Yes, precisely. I sure think that's a fair way to present it. Despite protests of ...
by richard
Fri Jul 25, 2014 8:33 am
 
Forum: Investing - Theory, News & General
Topic: Profiting from Unprofitable Companies
Replies: 22
Views: 1988

Re: Profiting from Unprofitable Companies

longinvest wrote:Jo, does the growth graph account for the DFA advisor fee?

It's a standard morningstar chart. It accounts for the funds' expense ratios, but not amounts paid to advisors.
by richard
Fri Jul 25, 2014 8:29 am
 
Forum: Investing - Theory, News & General
Topic: Profiting from Unprofitable Companies
Replies: 22
Views: 1988

Re: Can I use 30-YR rolling returns to Calculate ER dispersi

The statistical method you're using is appropriate if you're taking a sufficient number of samples from a single population. A textbook example is is repeatedly drawing red and blue balls from a barrel of red and blue balls (where the underlying mix does not change each time you take a sample). Alas...
by richard
Fri Jul 25, 2014 8:27 am
 
Forum: Investing - Theory, News & General
Topic: Can I use 30-YR rolling returns to Calculate ER dispersion?
Replies: 6
Views: 570
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