Search found 553 matches

by detifoss
Wed Nov 17, 2010 3:25 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

Larry's point was that a ladder with a 5 year average maturity would have higher return than most funds with a 5 year average maturity, claiming that the fund would mimic a constantly rolled 5 year bond, while the ladder could have the return of a 10 year bond, with the risk of the rolling five year bond. Others disagreed. You seem among those who disagree.
If this were true (and I am not arguing one way or the other in this post), then why would the overwhelming majority of bond funds/etfs pursue a clumped (bulletesque) approach instead of a ladder?

If it is cost/ tax efficiency that is one thing, but there would be no reason for funds to offer an inferior product de novo...
by detifoss
Wed Nov 17, 2010 11:57 am
Forum: Investing - Theory, News & General
Topic: in which we decide collectively not to panic....
Replies: 45
Views: 6297

I have to keep repeating to myself "the market already knows it" so as not to deviate from my target allocations, but my hunch (on which I will not act) is that it is the threat of deflation that is underestimated by the public (the threat of inflation is probably over-estimated).
precisely

stay the course, maybe deflation,maybe inflation, maybe nothing

but QE2 is clearly not being seen as a driver of hyperinflation or anything of the sort...
by detifoss
Wed Nov 17, 2010 11:07 am
Forum: Investing - Theory, News & General
Topic: in which we decide collectively not to panic....
Replies: 45
Views: 6297

let's see

core CPI up 0.6% YOY

if you think its 'different' this time, perhaps you might wna to look at the the aftermath of previous massive deleveraging episodes from asset bubbles...
by detifoss
Tue Nov 16, 2010 2:53 pm
Forum: Investing - Theory, News & General
Topic: in which we decide collectively not to panic....
Replies: 45
Views: 6297

Just how is QE2 different than QE1 or a routine lowering of interest rates? Obviously the mechanics are different, but it's just normal monetary policy. Let's not be naive, it is not NORMAL monetary policy, nor is it ROUTINE FOMC operating prodedure. Also, a big difference between QE1 and QE2 is that we now know that QE1 (and yes, it was huge) really didn't do that much. Contrary to what the FED says many people that actually live in the real world here in the U.S. are experiencing inflationary pressures, regardless what the stats say. Also, I think many people are weary of these relatively extraordinary measures by brainiacs that never saw the original meltdown coming in the first place. And now these same people are making wagers that mi...
by detifoss
Tue Nov 16, 2010 2:48 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

Re: Matt

there is no error. I am not ignoring anything. It is just how I explained it. You are buying 10 year bonds and holding them to maturity in the example I gave (after the first ladder). Assuming rates never move you will have earned the rate on the 10 year over time, Which is higher than the rate on the five year, held to that maturity. But at the first time point (today) didn't I need to buy a 1, 2, 3, 4, 5, 6, ,7, 8, 9, and 10 yr? From then on I will always by a ten year with the proceed of the maturing bond. If I only buy a new ten year every year, I have to wait 10 years to construct my ladder, during which time the bond market could move up down or any which way, which would necessarily mean a different (better or worse) outcome than ho...
by detifoss
Tue Nov 16, 2010 2:33 pm
Forum: Personal Finance (Not Investing)
Topic: Do you use an escrow account for your mortgage?
Replies: 68
Views: 19344

The lender will always collect more than needed and no interest on the excess.
again, not true in all states
by detifoss
Tue Nov 16, 2010 1:09 pm
Forum: Investing - Theory, News & General
Topic: in which we decide collectively not to panic....
Replies: 45
Views: 6297

richard wrote:
detifoss wrote:I can't for the life of me understand why QE2 led to so much teeth gnashing, while QE1 was truly massive in size and scope, with a defined amount that was not subject to reduction
You might want to think about the political implications.
I have

certainly won't comment on them here, but those same 'implications 'were present for QE1

makes. no. sense.
by detifoss
Tue Nov 16, 2010 1:04 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

In summary, there is absolutely no inherent benefit in a bond ladder so I'm back and as confused as ever. if there is an 'inherent' benefit to the ladder, assuming it is constructed all at the same time (like the code linuxizer presented) then I just don't see it. If the idea is to construct it over 10 years, then I see it, but only IF bond prices change in a particular way... So I guess my question is very simple: Under what exact (forward) conditions will a straight ladder (constructed simulataneously today) outperform a bullet (or clumped) fund, assuming 1.) costs are the same for both 2.) the bonds are held in a tax deferred account this is really the question and I would love to know the specific answer. Likewise I would like to know ...
by detifoss
Tue Nov 16, 2010 12:51 pm
Forum: Investing - Theory, News & General
Topic: in which we decide collectively not to panic....
Replies: 45
Views: 6297

I can't for the life of me understand why QE2 led to so much teeth gnashing, while QE1 was truly massive in size and scope, with a defined amount that was not subject to reduction. My only thought is that perhaps the feeling is that velocity is increasing (slightly) and the liquidity now available is making people nervous.

Until aggregate demand starts showing signs of stregth, I see little if any inflationary fear from QE2 in the near term.

I'm much more concerned about the fate of the Euro...
by detifoss
Mon Nov 15, 2010 7:51 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

linuxizer wrote:
detifoss wrote:
The extra returns come from increased exposure to the long end of the yield curve. Over time, the strategy should pay off, but it's not without risk.
Why is this so?
If rates rise, don't I lose with my slowly built ladder?
That's the risk. The historical and theoretical payoff comes from the market efficiency argument that Doc cited from Larry's book. The best predictor of future rates is the current yield curve.* So like any risk premium, you get paid for taking it on.

Ari

* There's a nifty argument for this involving forwards, but I don't think it's worth covering unless you're really not buying this statement.
hmm, past performance is sort of a guarantee in bond markets?
by detifoss
Mon Nov 15, 2010 7:42 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

The extra returns come from increased exposure to the long end of the yield curve. Over time, the strategy should pay off, but it's not without risk.
Why is this so?
If rates rise, don't I lose with my slowly built ladder?
by detifoss
Mon Nov 15, 2010 7:21 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

"Over time" is the key phrase here. The two numbers are not direclty comparable. When the ladder is being built, one bond at a time: Your explanation is exactly what I thought. But, then where is the advantage? If rates rise (pre 1980 for example), during the first ten years get pummeled as I get a lower yield than the fund would have as I build my ladder. By year ten, we start equalizing, more or less. If rates fall, I win for the opposite reasons of course. I was under the assumption that I am not building the ladder over ten years, but instead I am buying all ten rungs simultaneously, in which case, I believe the difference between the ladder and the clumped fund comes down to the shape of the yield curve. If I build it over t...
by detifoss
Mon Nov 15, 2010 7:14 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

This all assumes a flat interest rate curve. With a non-flat curve, you can tailor your bond holdings to the sweet spots on the curve as Larry has said. Therefore you can take advantage of a little better yield on the long end. But to compare apples to apples, you still need the average duration to be the same. So if you want a duration of 7 years and you're loading up on the 10-12 year bonds, and the very short end of the curve really stinks, you can load up heavily on 3-5 year bonds. But ultimately you want the duration to be the same if you're comparing like to like. mmm, convexity now we are getting to the swiss cheese of my understanding :) but my more basic question, referencing above, is that yes, I see that if the curve is steep, a...
by detifoss
Mon Nov 15, 2010 6:54 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

If the yield curve were flat, then all bonds would carry the same interest rate sensitivity This part's not right. If the yield curve is flat, all the bonds initially carry the exact same yield. But the sensitivity is determined by the duration: http://www.bogleheads.org/wiki/Duration Think of duration as the weighted average of the cash flows of the bond. Since a bond in a low interest rate environment has most of its cash flows when it matures, the duration will be close to the maturity. So a 5-year bond has a duration of, oh, 4.5 years, and a 10-year bond has a duration of say 9 years. Another key property of duration is that it gives you a measure of "interest rate sensitivity."* So you quickly see that even though the yield ...
by detifoss
Mon Nov 15, 2010 6:37 pm
Forum: Investing - Theory, News & General
Topic: Larry Swedroe on bond ladders vs. bond funds
Replies: 102
Views: 15297

I am struggling a bit to understand this issue, and so I wanted to pull real world data into this discusion to see if it would help me understand it (with help from other posters who are much more knowledgeable than me). Approximately 15% of my portfolio is in FIBIX which is an 'Intermediate Treasury Fund' the duration (essentially) is 6.5 years with the following composition: Duration Distribution (%) as of 09/30/2010 <= 1 year .18 1 <= 2 years 0 2 <= 3 years 0 3 <= 4 years 0 4 <= 5 years 6.41 5 <= 6 years 32.66 6 <= 8 years 44.05 8 <= 10 years 16.14 10 years 0 Not Available .56 The average Maturity is basically 7.3 years with the following composition: Maturity Distribution (%) as of 09/30/2010 0 <= 1 year .18 1 <= 3 years 0 3 <= 5 years ...
by detifoss
Sun Nov 14, 2010 5:17 pm
Forum: Personal Finance (Not Investing)
Topic: Do you use an escrow account for your mortgage?
Replies: 68
Views: 19344

Les wrote:I'm really surprised at the poll result. Thought most people at Bogleheads site would see the obvious advantages of doing it yourself. This is a lot easier then even doing your own taxes.

Assuming you can opt out of an escrow account, the answer is obvious.
see my earlier post

in CA, not so obvious...
by detifoss
Sun Nov 14, 2010 12:24 am
Forum: Personal Finance (Not Investing)
Topic: Do you use an escrow account for your mortgage?
Replies: 68
Views: 19344

I believe California requires a minimum interest be credited on escrow accounts, and the minimum is 2%, which is better than my money market or liquid savings accounts.

tfb, as usual, is all over this (see the link within for the state specific rules):

http://thefinancebuff.com/2009/07/does- ... erest.html


So yes, I have an escrow, and as long as I do get interest on it and taxes are paid in a timely fashion, I don't mind, unless and until interest rates rise - then I will want to get out.
by detifoss
Sun Nov 14, 2010 12:13 am
Forum: Investing - Theory, News & General
Topic: California RAN and Munis
Replies: 41
Views: 6303

Re: Diversification is all-important

Hi Detifoss: In my opinion, with mutual funds readily available, it is a mistake (unless you can afford the loss) to own any stock or bond single-issue security that will represent more than 5% of your portfolio. One exception would be securities guaranteed by the Federal government. For longer term GO's I couldn't agree more. For the RANs, I could see a reason to make an exception, because the likelihood of a CA default in the next 9 months is essentially equivalent to the risk of default of Treasuries during that time period, i.e., basically zero. Still, I personally probably wouldn't do it since I only invest in US nominals and TIPS for my fixed income (and FDIC insured CDs too). Nevertheless, I do believe that GO's despite their track ...
by detifoss
Sat Nov 13, 2010 8:38 pm
Forum: Investing - Theory, News & General
Topic: DFA joins Commodities bandwagon
Replies: 46
Views: 7303

It is the combination of stock-like returns AND negative correlation that is special. French is simply saying you can have stock-like returns, but that investment won't have negative correlation. Or....you can have negative correlation, but that investment will have very poor returns. But you won't get both. You get the negative equity correlation and low returns with FDIC insured CDs and short term bonds but without the rough ride and paying Wall Street fat fees. Adrian anenu@tampabay.rr.com In a persistent supply shock situation (months after a mission to eliminate suspected Iranian nuke building sites, for instance), I would be fairly confident that CCFs would spike, while bond prices would fall, as would equities. The rough ride of CCF...
by detifoss
Sat Nov 13, 2010 8:02 pm
Forum: Investing - Theory, News & General
Topic: California RAN and Munis
Replies: 41
Views: 6303

Re: California RAN and Munis

I didn't see a thread on this so I thought I would start one My apologies if this is in another thread, please merge/lock this one if that is the case :D 1.) Looking on Fidelity, I saw that California is offering Revenue Anticipation Notes (again) the 'expected' yield on the ones maturing in 6/28/11 (6 months) is listed as 1.25%. for those maturing in 5/25/11 (5 months) it is listed as 1.0%. My tax situation is 33% fed, 9.55% state, that works out to 1.65% and 2.06% taxable equivalent yield respectively. The best CD yield I could find for a 6 month CD was 1.14%. So depending on your tax situation, the yield on these RANs is almost 2x the best available FDIC insured rates. An FDIC insured CD is essentially 100% safe, but I would submit that...
by detifoss
Sat Nov 13, 2010 8:01 pm
Forum: Investing - Theory, News & General
Topic: California RAN and Munis
Replies: 41
Views: 6303

Re: California RAN and Munis

For those living in California, this is close to a free lunch (at the cost of our high state tax rate of course), albeit a small snack :) A small snack indeed. For every $10k you put in the RAN, you get 0.92% more. That's $92, taxable. But it's only 6 months. So $46, taxable. After tax maybe $25, or $4 a month. Dump $100k in it, you get $40 a month bonus. Enough for a dinner for two at a no so fancy place. 5.75% tax free for 10-17 years -- that's more interesting if the deal still exists today. What does Fidelity say the expected yield is on the GOs? Nothing yet on Fido as to the expected yield on the GO's. The ones I bought in 4/09 had a coupon of 5.625% and ended up selling just under par (99). Last trades on my bonds are around 107 to 1...
by detifoss
Sat Nov 13, 2010 12:28 pm
Forum: Investing - Theory, News & General
Topic: The Death of Buy and Hold has been Greatly Exaggerated
Replies: 47
Views: 6771

Beagler wrote:Even Kramer (who's supposedly a well-educated investing professional) equated the S&P 500 with the be-all of indexing during an interview within the past year or so -- I recall him [shouting] "the S&P's gone nowhere over the past 10 years!"
I think Cramer (Jim) is just as likely to espouse good investment advice as Kramer (Cosmo)
by detifoss
Sat Nov 13, 2010 12:05 pm
Forum: Investing - Theory, News & General
Topic: California RAN and Munis
Replies: 41
Views: 6303

Beagler wrote:More RAN's, eh?

Good luck CA.
---------------------------------
Every bartender knows when to cut off a patron who's been overserved.
since CA is a very large part of the US economy, perhaps it should read good luck, USA.
by detifoss
Sat Nov 13, 2010 11:57 am
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

I like the framework you've laid out- ability to print, ability to tax. To refine/extend this, I think we may want to make a distinction re the level of government at which the taxation is levied: federal, state, local. Local/state governments do have the power to tax, but I would argue it is ultimately more limited than the federal governments power. The problem is that if a state/city hikes its taxes alot people have the power to escape that taxation by leaving. Then the state/city would have to hike its taxes even more on the lower tax base. Ultimately a death spiral would result. cheers, absolutely true the only thing I would add is that (thus far) state/local governments have other taxes at their disposal chief among them are property...
by detifoss
Sat Nov 13, 2010 11:50 am
Forum: Investing - Theory, News & General
Topic: California RAN and Munis
Replies: 41
Views: 6303

I have 20% on muni mutual funds. They lost quite a few percents last couple of weeks, but still positive ytd. I'm nervous, but what else can I go? pull them out, and put it in 0.5% CD? or 2% 5-year CD and pay 40+% tax (fed + state tax)? not an appealing alternative either. So I haven't done much. If muni drops another 5%, I might actually add some. unless you have sudden reason to believe that your plans to have 20% in Muni funds was a 'mistake' just stay the course and rebalance as you would normally in 2008 the Vanguard CA intermediate term tax exempt fund had a total return of -2.14% in 2009 it returned +9.70% lots of nerves in 2008 and 2009 and now in 2010 - no way to know if those nerves will hurt your returns or not, but in a well ma...
by detifoss
Sat Nov 13, 2010 11:42 am
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

forced to buy governments treasuries though....
perhaps forced was a bad choice of words

how about

compelled :?
by detifoss
Sat Nov 13, 2010 11:29 am
Forum: Investing - Theory, News & General
Topic: DFA joins Commodities bandwagon
Replies: 46
Views: 7303

Quote: The claims that, going forward, commodity funds (i) will have the same Sharpe ratio as the stock market, (ii) will be negatively correlated with the returns on stocks and bonds, and (iii) will be a good hedge against inflation can't all be true. Who would want the other side of this trade? (i) I'm not sure that the 'believers' in CCFs are on board with this statement (ii) as Larry has pointed out, among many others, CCFs are not expected to be negatively correlated with both stocks AND bonds. Rather, it is hoped that this historical precedence reamins true: in no year have CCFs (or their index - I know, I know), equities, and long(er) term USTs all simulataneously declined. Correlations can drift, but it is fairly hard to imagine a ...
by detifoss
Sat Nov 13, 2010 11:14 am
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

If Godlman Sacsh and GE Captial http://tinyurl.com/2uz8tz4 started "printing corporate money" out of thin air (with no assets to back them up, other than their "full faith and credit") to purchase their corporate bonds to artificially depress the long-term rates on their bonds, how would investors react? depends does their full faith and credit also come with the power to levy taxes and imprison those who evade paying said taxes? the ability to print (and tax) reduces default risk to near zero thus state or local munis have higher default risk (print: no tax: yes) and corporates higher still (prnt: no tax: no) it does not, obviously, reduce the inflation risk inherent in all nominal bonds if the Fed prints, and if inves...
by detifoss
Sat Nov 13, 2010 10:11 am
Forum: Investing - Theory, News & General
Topic: California RAN and Munis
Replies: 41
Views: 6303

California RAN and Munis

I didn't see a thread on this so I thought I would start one My apologies if this is in another thread, please merge/lock this one if that is the case :D 1.) Looking on Fidelity, I saw that California is offering Revenue Anticipation Notes (again) the 'expected' yield on the ones maturing in 6/28/11 (6 months) is listed as 1.25%. for those maturing in 5/25/11 (5 months) it is listed as 1.0%. My tax situation is 33% fed, 9.55% state, that works out to 1.65% and 2.06% taxable equivalent yield respectively. The best CD yield I could find for a 6 month CD was 1.14%. So depending on your tax situation, the yield on these RANs is almost 2x the best available FDIC insured rates. An FDIC insured CD is essentially 100% safe, but I would submit that ...
by detifoss
Sat Nov 13, 2010 9:15 am
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

Now, I personally don't like corporate bonds as their returns are limited in an upmarket. But you have the full downside risk (full loss). Since the worst case scenario is the same for bonds with credit risk as with equities, I'd go with equities since the upside is much greater. But someone else might come to the conclusion, that he likes to diversify across the risk spectrum and that's fine.
Very, very well said.
by detifoss
Sat Nov 13, 2010 12:04 am
Forum: Personal Finance (Not Investing)
Topic: Treasuries pay higher rate than mortgage interest rate
Replies: 8
Views: 1866

No, Treasuries are not more attractive. You need to compare comparable duration interest rates. If you consider a 30-year mortgage @ 4.5% (my rate) that will be paid according to the amortization schedule with no prepayments, the duration is approx. 11.8. A comparable duration U.S. Treasury coupon bond has a 15-year maturity and about a 3.5% yield. A 12-year zero coupon bond Treasury bond also yields about 3.5%. there was a nice little free lunch not to long ago though. the 10 yr CDs at the Ohio 529 were paying 5.0%. If used to pay for college education, these were tax free growth and tax free 'withdrawal.' So a true after tax 5.0%. Those with 30 yr fixed mortgages with rates <5.0% and thus a likely after tax rate of 4.0% or lower were giv...
by detifoss
Fri Nov 12, 2010 11:53 pm
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

It's interesting to think about. I'm not sure I'm following your last argument though. If certain folks are force to hold short term corporates then that would drive the yield down and make the 1-2% excess return disappear.... to be clear, I was referring to the fact that foreign governments, central banks, depository and investment banks etc, are forced to hold Treasuries, and thus this may force their yields down relative to similar duration highly rated corporate issues, thereby allowing the free lunch to persist at the short end. at the long end, I suspect that as you so nicely demonstrated, the risk of default is greater than what is priced in - your nice piece of math was what I was trying to say earlier in commenting on the chart ni...
by detifoss
Fri Nov 12, 2010 6:45 pm
Forum: Investing - Theory, News & General
Topic: Where Did All The Money in the Market Go Today?
Replies: 38
Views: 4944

a little bit of leverage died today

imagine fractional reserve banking suddenly saw the required reserve ratio double.

money supply held by banks would essentially be cut in half.

where did it go? same place it came from. nowhere
by detifoss
Fri Nov 12, 2010 6:43 pm
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

If you go with coroporates, I believe Larry has advocated that diversified high quality corporates at the short end are where there 'might' be a free lunch relative to their UST nominal counterparts. This makes intuitive sense and has been proven to be true historically by empirical data, of course no guarantees going forward. It's very much one of those puzzles in finance. ST Investment grade seem to do better than the risk would suggest. You pick up a steady (say) 1-2% above ST risk free securities in yield, without getting hammered by defaults by enough to offset that (whereas, with HY bonds, the defaults do over the long cycle appear to eat up most of the excess return). The above is my understanding as well. Going forward I think perh...
by detifoss
Fri Nov 12, 2010 6:41 pm
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

Bonds are bonds. If you are certain the promise will be kept, two promises to pay the same number of dollars on the same days are equivalent. Assuming a high enough rating that default can be neglected, a Treasury bond and a corporate bond with the same coupon, duration, and other factors really ought to be pretty much interchangeable. You cannot really compare sovereign country ratings with corporate bond ratings: I think Moodys and S&P will tell you that. An investment grade corporate has a much higher default probability than an investment grade sovereign, historidcally, I believe. Also corporate bonds are often callable, and are usually for shorter maturities. They usually carry a higher yield because they are significantly less li...
by detifoss
Fri Nov 12, 2010 11:21 am
Forum: Personal Investments
Topic: Does one need corporate bonds?
Replies: 49
Views: 4997

Duration is more important than type of bonds. Longer duration hasn't been rewarded with comparable expected returns for the amount of risk / volatility it imparts to the portfolio. I'd say that's a matter of opinion. LT bonds have earned higher returns. Whether the returns were high enough to compensate for the additional volatility is subject to investor preference. Stay short. Doesn't really matter if it's treas or high-quality corporates. Some amount of TIPS serves as a diversifier, too. There's no universally-correct answer to this. FWIW, David Swensen, whom I admire very much, suggests LT treasury bonds as the core bond holding for individual investors. His rationale has to do with low correlation, particularly during major event cri...
by detifoss
Thu Nov 11, 2010 11:27 pm
Forum: Personal Investments
Topic: Do you have any TIPS (e.g. VIPSX) in your portfolio?
Replies: 79
Views: 13885

Boglehead

75% equities (includes REITs and small slice of CCF)

25% bonds: 1/2 TIPS (virtually all TIPS with maturity past 2026, tiny bit of TIP etf) 1/2 nominal intermediate treasuries + stable value fund
by detifoss
Tue Nov 09, 2010 6:46 pm
Forum: Investing - Theory, News & General
Topic: Investing and the "Endowment Effect" : Swedroe
Replies: 50
Views: 7710

I am not sure where "staying the course" ends and "endowment effect" kicks in but it's not simple. There is value to sticking to a plan. And, just as indexing involves a prior decision to hold bad stocks along with good, "staying the course" involves a prior decision to stick to a plan and take some bad along with some good. staying the course and the endowment effect are not related. the endowment effect is incredibly real - the mere fact that on multiple threads posters on this financially savvy forum have stated that buying and holding are not the same is proof positive. deciding to stay the course with your assets is exactly the same as waking up today with the same lump sum of money, and buying the exact ...
by detifoss
Tue Nov 09, 2010 12:34 pm
Forum: Investing - Theory, News & General
Topic: My take on gold
Replies: 30
Views: 3883

gold is overvalued at anything over the production cost so in my world, it is virtually always in a 'bubble' its current worth is derived from future expectations of its worth, which is derived from ? there is no P/E for gold. it is a hedge only if the future price of gold is still driven by the future desire to accumulate it to hedge against still later inflationary fears the price of gold reached its purchasng power all time high in 1980, and we are a long way from that, but there is no reason whatsoever to think that the 1980 high is a stopping point, or a starting point for any current bubble this time is not different. buy gold if you would like, but at your own risk. now if I could just get that rock bottom million acres of timber...
by detifoss
Mon Nov 08, 2010 11:12 am
Forum: Investing - Theory, News & General
Topic: "Principal Preservation" Definition (pre-poll surv
Replies: 8
Views: 2110

for me it is B, never A or C
if I still have a portflio of 2 million dollars but the basket of items I consume in one year has gone up in price by a a fctor of two, nominal principal preservation is of no use to me.
by detifoss
Mon Nov 08, 2010 11:10 am
Forum: Investing - Theory, News & General
Topic: Poll: How many trades did you have in October 2010?
Replies: 73
Views: 6600

The interesting thing about this post/poll was how people have different definitions for a trade. The actual poll results are completely useless as I didn't anticipate people having each their own definition. For me a trade is whenever your buy or sell something that varies in prices. And I am sure that definition has holes as well. I am all ears for a better definition. However, I simply don't care whether it was automatic, or regular, or dividend reinvestment, or TLH-ing, or scheduled fifteen years ago, or whether it was very small (for example one resulting from a share class conversion). For me a trade is a trade and the Wells Trade transaction history seems to agree with me. It seems I am the only one who has such a strict definition ...
by detifoss
Sun Nov 07, 2010 10:38 am
Forum: Investing - Theory, News & General
Topic: Poll: How many trades did you have in October 2010?
Replies: 73
Views: 6600

every single month I have a minimum of 10 trades 401k contributions occur twice a month, and each contribution buys 4 funds (30%, 30%, 30% and 10%) Two bond funds (one for myself and one for spouse) though they are the same fund, are held in different accounts, and automatically reinvest their interest earnings on the last day of the month. Before the 401k is maxed out for both of us, we have more trades, a minimum of 12 I believe. I'm not sure at all how this information is useful to anyone. These are all passive purchases, exact same ones that have been ongoing for 4 years now, without a single change. Sometimes I have to rebalance, or change fund locations, or purchase something new (like VSS when it came out). But I'm not really sure wh...
by detifoss
Thu Nov 04, 2010 9:14 am
Forum: Personal Investments
Topic: what should I do with my very-appreciated TIPS ?
Replies: 90
Views: 12954

After reading all the comments and giving this more thought, it seems to me the answer is inescapable. Buying TIPS today up to a 7-year maturity means locking a 0% real annual return or less. Up to 20 years, a real return of 1.2% or less, and 30-years, a real return of 1.4% or less. You will get the same return whether you buy or continue to hold TIPS bought previously. You have the choice of not buying TIPS, or of selling those already owned. A decision to hold is the same as a decision to buy, and a decision to sell is the same as a decision not to buy. If TIPS are not bought or held, and protection of current real yield is sought, the only other choice is to purchase, or hold, short-term treasuries, CDs, or equivalent instruments - roll...
by detifoss
Wed Nov 03, 2010 12:17 pm
Forum: Investing - Theory, News & General
Topic: Bogle's position on CPI accuracy
Replies: 24
Views: 3681

Einhorn is referencing this stuff: Are you sure that's what Einhorn is referencing? I am sure, and you will be too after you read this: Government statistics are about the last place one should look to find inflation, as they are designed to not show much. Over the last 35 years the government has changed the way it calculates inflation several times. According to the Web site Shadow Government Statistics, using the pre-1980 method, the Consumer Price Index would be over 9 percent, compared with about 2 percent in the official statistics today. http://www.nytimes.com/2010/05/27/opinion/27einhorn.html?_r=1&pagewanted=all If you go the the NY times article, you will see that Einhorn provides this link to back up his 9% claim: http://www....
by detifoss
Mon Nov 01, 2010 6:28 pm
Forum: Personal Finance (Not Investing)
Topic: Anyone Try Bogle's Ultimate Buy&Hold Idea?
Replies: 29
Views: 6578

Times have changed and so have tax laws. I do not see how holding a Nifty Fifty will save you on taxes over just holding a total stock market index fund or a S&P500 index fund. The index funds will not distribute capital gains anymore than your Nifty Fifty. The dividends would be the same in both instances. Management fees are rock-bottom now, though so are commissions. Your efforts to reinvest dividends will probably lose as much money as you lose on an index fund's expense ratio. I certainly think tax issues could theoretically be a drag, but at least currently, the top 50 sport dividend yield of 2.28% vs the entire s&p 500 which is just a hair over 2.0%. So that issue is likely to be moot in the long run. If following Bogle's ac...
by detifoss
Mon Nov 01, 2010 5:40 pm
Forum: Personal Investments
Topic: what should I do with my very-appreciated TIPS ?
Replies: 90
Views: 12954

Well, my question does relate to the the OP's question of what to do with TIPS "profits." I set up an 18-year TIPS ladder for retirement income purposes, luckily during the short period in 2008-09 when the real YTMs popped. I was very influenced by the writings of Zvi Bodie, that TIPS are a kind of "set it and forget it" kind of retirement investment that "guarantee" a year-after-year income in excess of inflation (by whatever the coupon is, net of taxes, etc.). I had the frame of reference that a TIPS ladder was sort of a "roll your own" inflation-indexed annuity that would provide a predictable $XXXX inflation-adjusted dollars annually. But my head is all screwed up thinking - well, heck, a lot of ...
by detifoss
Mon Nov 01, 2010 4:07 pm
Forum: Personal Investments
Topic: what should I do with my very-appreciated TIPS ?
Replies: 90
Views: 12954

The part I can't understand is this. So many of you want to feel you've "locked in" the YTM of the TIPS you bought some time ago. You have simply been paid much of that promised return early. So don't be so disappointed! Yeh, I understand what you're saying: based on the appreciated value of the TIP (market value), my YTM is not what it was when I bought the bond. Some of the promised returns have been pushed forward into the market value of the bond. What I'm struggling with (still) is this. From my perspective, I bought the bond in 2009 to "lock in" real income. Let's say the coupon was 0%, and I invested $20,000 in a 2029 TIP. I did so expecting that in 2029 I'd have the $20,000 returned to me in 2009 dollars, preser...
by detifoss
Mon Nov 01, 2010 12:44 pm
Forum: Personal Investments
Topic: Clarifying What I Know About Small Cap and Value Tilting
Replies: 47
Views: 5890

It is not so important to choose the right (which can only be known in retrospect anyway) asset allocation, as to choose one you can stick with. It bears repeating even though it has been said time and time again. I tilt. If I had sold equities in early 2009 and was too timid to get back in until much of the runup had ocurred, my lifetime portfolio performance would likely have been negatively impacted by far more than the potential expected extra return from my 'tilt.' Likewise, for those who tilt and then decide not to tilt, they will certainly end up with a similar drag on returns. We use our best evidence, academic papers, and then most importantly, an evaluation of our behavioral biases (flaws) to set an AA that we can stick with to t...
by detifoss
Mon Nov 01, 2010 11:26 am
Forum: Personal Investments
Topic: what should I do with my very-appreciated TIPS ?
Replies: 90
Views: 12954

As an investor with a bond heavy portfolio, and also one fortunate to have filled out his TIPS allocation during the fire-sale of '08-'09, I have been struggling with this problem as well: some really significant capital gains on all my treasury holdings (TIPS & nominal) in my tax deferred accounts. I did sell a few TIPS to rebalance (into nominals at first of year), but had not really considered selling and changing my AA until I read remarks by Bill Bernstein from the Philadelphia meeting that he had sold his personal TIPS & Treasury holdings to lock in the gains, and moved his fixed income into T bills. The good doctor reiterates this in a recent Morningstar interview: I think that one of the hardest things to do about investing...
by detifoss
Sat Oct 30, 2010 8:22 pm
Forum: Personal Investments
Topic: what should I do with my very-appreciated TIPS ?
Replies: 90
Views: 12954

Re: what should I do with my very-appreciated TIPS ?

I have about 50% of my bond allocation (about 40% of my egg) in TIPS, mostly purchased during the 3-4% YTM firesale a couple years back. They have appreciated as much as 30% (the Jan 2028 ones), mostly 20%. Other than patting myself on the back, I'm wondering what I should do with them: hold 'em or take some profits ? In response to the inevitable question, what is their purpose in your portfolio, all I can say is that I believe in having a 40% bond allocation and 50% or so of that in TIPS. Which is about where I'm at now. So I guess I've answered my own question, but would welcome contrary arguments. Thanks. If you had bought I bonds in 2008 with a real yield of 3% would you sell them now? OK, you couldn't because there is no secondary ma...