connya wrote:The reason I ask is that I've just realized that the only reasonably priced fund in my wife's 401k is a money market fund, so if I could incorporate it into my portfolio without changing the characteristics noticeably that would be neato.
rmelvey wrote:Google "bullet" vs "barbell."
Assuming a parallel shift in interest rates, you are correct that the same weighted duration means they will act similarly. However the yield curve has many moments of non-parallel shifts. Check out this thread for more details:
The barbell will outperform in periods of unexpected yield curve inversion
My FI allocation is a blend of bills and 30 year Treasuries (that will be rolled over to fresh 30 year ones when they reach 25 years)
Clive wrote:Over the long term, the average yield curve tends towards averaging out flat overall. Robert Shiller's data for example indicates the average of the 1 year yield since 1871 to be close to the average yield of the 10 year yield.
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ogd wrote:Hmmm, what's it yielding? If it's next to nothing, like most MMF's these days, then I would say that as much as I hate fund fees, a MMF is a waste of tax-advantaged space. You could hold that cash outside the 401k, making some 1% before tax, and use the 401k for stocks. Even with 1% fees, the tax discount on stock returns is probably worth it.
Your barbell plan sounds fine otherwise, the risk and duration balances out nicely.
rmelvey wrote:My FI allocation is a blend of bills and 30 year Treasuries (that will be rolled over to fresh 30 year ones when they reach 25 years)
Iorek wrote:rmelvey wrote:My FI allocation is a blend of bills and 30 year Treasuries (that will be rolled over to fresh 30 year ones when they reach 25 years)
Have you considered some EE bonds as substitutes for the 30 year treasuries (are the limits too low to be practical)?
I believe that everything you said is correct. Some other things to google are "pure expectations theory" and "liquidity premium" with regards to bonds. Those two should help you round out your thoughts. I think the correct statement is that the barbell outperforms when short rates go up more than expected.... Remember that the long end of the curve is roughly a geometric average of expected forward short term rates.
At the end of the day, the barbell vs. bullet decision is very minor. Most bogleheads decide to go with the bullet or TBM, but the barbell works very similarly. Personally, I find the barbell to be more flexible and it gives you more control. For example, right now I have my LT bonds in my Roth and my cash in I-Bonds (planning to redeem them if rates rise). I think the benefits of this type of barbell are quite self explanatory
FWIW I believe Larry Swedroe doesn't like the barbell, and Grok does. I believe Taylor has a relevant saying about when experts disagree...
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