Search found 770 matches

by ThrustVectoring
Tue Jan 21, 2020 7:14 pm
Forum: Investing - Theory, News & General
Topic: Critique this leveraged portfolio
Replies: 80
Views: 7311

Re: Critique this leveraged portfolio

You're paying a lot more for leverage than you should need to spend. Put 60% of your portfolio in straight equities instead of 30% in 2x levered equities, and purchase Treasury futures contracts for leverage. These sorts of futures contracts are what the 2x daily ETFs are using anyhow, they're just marking things up by something like 90 basis points. Don't I need a margin account to buy futures? I don't have a margin account. What you describe is basically how WisdomTree 90/60 (NTSX) works. For every $100 they put $90 in equities and $10 in cash as collateral for futures contracts. So they give you get a 1.5x leveraged 60/40 portfolio. Let's see... if for every $100 I put $60 in equities and $40 as collateral ... I would need less leverage...
by ThrustVectoring
Tue Jan 21, 2020 1:19 pm
Forum: Investing - Theory, News & General
Topic: Critique this leveraged portfolio
Replies: 80
Views: 7311

Re: Critique this leveraged portfolio

You're paying a lot more for leverage than you should need to spend. Put 60% of your portfolio in straight equities instead of 30% in 2x levered equities, and purchase Treasury futures contracts for leverage. These sorts of futures contracts are what the 2x daily ETFs are using anyhow, they're just marking things up by something like 90 basis points.
by ThrustVectoring
Tue Dec 03, 2019 10:21 pm
Forum: Investing - Theory, News & General
Topic: When a company repurchases its shares, does the company become less valuable?
Replies: 61
Views: 5431

Re: When a company repurchases its shares, does the company become less valuable?

It seems obvious that a share buyback should not affect the value of the underlying company since the action can be reversed at any given time by selling the treasury shares on the open market. Do you mean the value per-share or the total value of the company, here? You have to get different answers here, and in any case these actions shouldn't affect the per-share value of the company as long as it's a sale or purchase at market value. It does change the number of shares outstanding, which would make the company either more or less capitalized. Like, this is fundamentally the same process as how ETFs will create or redeem shares in exchange for the underlying assets, either expanding or contracting the balance sheet of the fund without ma...
by ThrustVectoring
Tue Dec 03, 2019 3:55 am
Forum: Investing - Theory, News & General
Topic: When a company repurchases its shares, does the company become less valuable?
Replies: 61
Views: 5431

Re: When a company repurchases its shares, does the company become less valuable?

Why would the equity of Microsoft drop when it buys Microsoft shares, but not when it buys Apple shares? I'm beginning to think you don't know what you're talking about. Shareholder equity is a liability to external shareholders. Microsoft is obligated to share any cash dividends or M&A cash-out on a proportional basis to shareholders, and the market values this obligation at Microsoft's current market capitalization. When Microsoft buys back shares, it extinguishes this liability to external shareholders, dropping their market capitalization by the amount of cash expended on share buybacks. When Microsoft buys Apple shares, it still has the same obligation to external shareholders, so their equity remains unchanged. That is what Klaus...
by ThrustVectoring
Thu Nov 21, 2019 12:12 pm
Forum: Investing - Theory, News & General
Topic: Fact or fiction? Having at least some bonds/cash, to rebalance vs 100% equities.
Replies: 41
Views: 3432

Re: Fact or fiction? Having at least some bonds/cash, to rebalance vs 100% equities.

I've heard 20% bonds as a better approach than 100% equities. The argument is that though the return has been only slightly less, but volatility was much less. Rebalancing was included, which was for the stability. Think of having bonds as ballast in the bottom of a ship. A ship rocks less with some ballast. That slows down the ship by making it sit lower in the water, but improves stability. Over longer and longer time periods, short-term volatility becomes less and less meaningful. Long-term growth rate will make a much bigger difference - a 2% difference in CAGR over 40 years will more than double your investment, which makes avoiding an ill-timed 50% market drop a moot question. If you're 20 years old and investing for retirement, stoc...
by ThrustVectoring
Thu Nov 21, 2019 12:08 pm
Forum: Investing - Theory, News & General
Topic: What does bond yield mean?
Replies: 10
Views: 1486

Re: What does bond yield mean?

There's two components to bond returns: coupon yield, and capital appreciation. A $100 face-value bond does not necessarily trade at $100. If interest rates have gone up, the bond needs to sell for less than face-value in order to be competitive; similarly, if rates have fallen, it'll trade above face value. Anyhow, this all feeds into capital appreciation - if you buy a bond with $100 of face value at $98, you'll earn $2 in total when it matures and pays you $100 back. The coupon yield is how much cash you will get paid each year, based off of the face value. If you buy $100 face-value of a 2.5% coupon bond, you'll get paid $2.50 each year. This could cost you more or less than $100, depending on prevailing interest rates. The 2.1% you saw...
by ThrustVectoring
Thu Nov 21, 2019 11:57 am
Forum: Investing - Theory, News & General
Topic: What "Exactly" Does Selling Order Flow Mean?
Replies: 31
Views: 4020

Re: What "Exactly" Does Selling Order Flow Mean?

The best explanation of payment for order flow I've seen here: https://www.kalzumeus.com/2019/6/26/how ... ake-money/

Tl;dr - it's between about 1 and 6 percent of a brokerage's income, pretty much a footnote. Payment for order flow exists because Goldman Sachs et al have an information edge and the capital to exploit market makers with large market-moving orders, and retail investors do not. You get better execution when the counter-party can guarantee that you're not Goldman Sachs about to run them over, and part of that gets remitted to your brokerage. The actual numbers that matter for brokerages is how much they pay in interest on idle cash.
by ThrustVectoring
Thu Nov 21, 2019 11:37 am
Forum: Investing - Theory, News & General
Topic: Fact or fiction? Having at least some bonds/cash, to rebalance vs 100% equities.
Replies: 41
Views: 3432

Re: Fact or fiction? Having at least some bonds/cash, to rebalance vs 100% equities.

A 5-10% difference in asset allocation shouldn't make a big difference in how well your portfolio does. When you're near an optimal point, the slopes involved are pretty shallow, so the exact percentages involved aren't really a big deal. Like, the US/International split is usually recommended at 60/40, and anything between 50/50 and 70/30 is a small enough difference that you basically won't notice it. Similarly, a very high stock allocation is generally ideal for growing money you know you won't need for the next 30+ years, so if 100% equities is ideal anything between 90% and levering up to 110% will be absolutely fine.
by ThrustVectoring
Fri Nov 08, 2019 1:39 am
Forum: Investing - Theory, News & General
Topic: Calls and Cash: talk me out of it
Replies: 23
Views: 5008

Re: Calls and Cash: talk me out of it

Between buying 5% of your portfolio in intrinsic option value and missing out on a roughly 2% dividend yield, you're going up against a 7% CAGR headwind in flat and bull markets. Considering that stocks only have something like a 7% real return, this is a huge deal.
by ThrustVectoring
Thu Oct 31, 2019 10:10 pm
Forum: Investing - Theory, News & General
Topic: 50 Year US Treasury Bond - who is taker?
Replies: 29
Views: 3371

Re: 50 Year US Treasury Bond - who is taker?

I have seen posts mentioning some would like to buy longer duration bond if US Treasury issue bonds longer than 30 year. Your wish might come true https://www.cnbc.com/2019/10/30/us-treasury-says-it-is-gearing-up-to-issue-a-50-year-bond.html . Are you going to buy? The Treasury is “exploring” potential additions to the current suite of Treasury securities, including a 20-year nominal coupon bond and a 50-year nominal coupon bond. Treasury Secretary Steven Mnuchin said previously that the government could be launching 50-year bonds as soon as next year. The federal deficit increased 26% to $984 billion in fiscal 2019, the highest in seven years. If they sell 50-year Treasuries, they're going to wind up with a ton of different issuances that...
by ThrustVectoring
Fri Oct 25, 2019 3:05 am
Forum: Investing - Theory, News & General
Topic: Why would someone buy a currency pair future when they could just buy the currency pair directlly?
Replies: 9
Views: 1374

Re: Why would someone buy a currency pair future when they could just buy the currency pair directlly?

If you have euros and want dollars in six months, you have two options: buy the currency pair future and a six-month German bill, or sell your euros today and buy a six-month Treasury bill. There's an arbitrage here between interest rates and the future rate ("covered interest rate parity") , but that's the least interesting thing about the futures market. Can you elaborate on this statement please? The future rate denotes what the exchange rate between two currencies should be based on the interest rates of the two currencies? It's an arbitrage trade - if the future exchange rate isn't what it "should" be based off the spot rates and interest rates involved, someone can make a profit without taking on any risk. If the ...
by ThrustVectoring
Wed Oct 23, 2019 12:59 pm
Forum: Investing - Theory, News & General
Topic: Why would someone buy a currency pair future when they could just buy the currency pair directlly?
Replies: 9
Views: 1374

Re: Why would someone buy a currency pair future when they could just buy the currency pair directlly?

If you have euros and want dollars in six months, you have two options: buy the currency pair future and a six-month German bill, or sell your euros today and buy a six-month Treasury bill. There's an arbitrage here between interest rates and the future rate ("covered interest rate parity"), but that's the least interesting thing about the futures market. What's useful about futures markets in general is that you can use it to hedge related economic risks without owning any of the underlying assets involved. If you want to buy the currency pair directly, you have to have the money now , which is a problem if you just sold an American importer a container ship full of goods and are getting paid dollars on a net-90 basis. You don't ...
by ThrustVectoring
Sat Oct 19, 2019 5:23 am
Forum: Investing - Theory, News & General
Topic: A gentle alternative to HEDGEFUNDIE's excellent adventure with 2-Year Treasury Futures
Replies: 151
Views: 25944

Re: A gentle alternative to HEDGEFUNDIE's excellent adventure with 2-Year Treasury Futures

In regards to Eurodollars, this is the response I got from Eric Hickman at Kessler: "I have done a lot of back-testing work with these shorter instruments, not trying to eliminate the negative carry, but to possibly capture more movement. The negative carry cannot be eliminated because what you don’t pay for in negative spread, you end up paying the equivalent rolling from one contract to the next (the roll-up the curve). This sounds very interesting, but I have to confess that I don't understand it! Is the "negative carry" here a relative comparison to treasuries, perhaps because the financing costs are different? Or is it just a statement that currently the yield curve is inverted, and so right now there is "roll up&q...
by ThrustVectoring
Mon Oct 14, 2019 1:01 pm
Forum: Investing - Theory, News & General
Topic: REITs or investment property?
Replies: 70
Views: 6668

Re: REITs or investment property?

Owner-occupied housing is heavily subsidized, so the real estate investment I personally like is occupying one unit in a duplex, triplex, or quadplex. It still has a hell of a lot of caveats to it - idiosyncratic risk from bad tenants, labor costs for DIYing repairs and managing things, and the correlation between rents and the local job market - but if you can stomach all that the subsidies are really nice. As a bonus, the entire owner-occupied building is bankruptcy-protected in Texas (and possibly other states). Maybe your first question should be: "do I really need real estate in my portfolio?" What are you trying to achieve that a classic 3-fund portfolio can't give you? #justsayin Real estate functions as a combination of ca...
by ThrustVectoring
Sun Sep 22, 2019 12:17 am
Forum: Investing - Theory, News & General
Topic: A gentle alternative to HEDGEFUNDIE's excellent adventure with 2-Year Treasury Futures
Replies: 151
Views: 25944

Re: A gentle alternative to HEDGEFUNDIE's excellent adventure with 2-Year Treasury Futures

Proposed Portfolio 66% Total US Stock Market 29% Total International Stock Market 5% cash, held to meet margin requirements for futures 285% 2-year Treasury Futures (\ZT) 385% sum (3.8x leverage) That's probably not using enough leverage and interest rate exposure for an aggressive portfolio. Futures have inter-commodity spread tables, which tell you the ratios of different contracts to hold to get a partial discount on required capital due to the market movements of the different items being negatively correlated. The S&P 500 and two-year treasury future have a ratio of 1:50, which when converted to cash amounts is roughly 1:13 (the full S&P 500 contract is significantly larger than the two-year treasury future). This isn't to say...
by ThrustVectoring
Tue Sep 10, 2019 2:48 pm
Forum: Investing - Theory, News & General
Topic: is real estate dead as a diversifier?
Replies: 52
Views: 7184

Re: is real estate dead as a diversifier?

Real estate is pretty complicated for a variety of reasons. First of all, housing prices are based off the net present value of future rents. As such, they behave like bonds to some extent - as interest rates fall, houses become more valuable because the value of a month's rent thirty years hence has gone up. On the other side, housing purchases are often financed with long-term fixed rate mortgages (at least in the US), which are effectively short bonds. There's an embedded call option to pay off the mortgage at par, too, which further complicates the analysis. Overall, though, the typical position is roughly long real interest rates, somewhat offset with a short nominal position, and hedged with a nominal call option. This is much more co...
by ThrustVectoring
Tue Sep 03, 2019 1:05 pm
Forum: Investing - Theory, News & General
Topic: Uncle Fred’s Second Coin – The Case for Leveraged Bonds
Replies: 133
Views: 11364

Re: Uncle Fred’s Second Coin – The Case for Leveraged Bonds

305pelusa wrote: Tue Sep 03, 2019 12:40 pm It might just be a nomenclature thing then. Your position only makes money if rates drop. To me, that's the ultimate level in speculation and market timing. It's a bet on future rate movement; if they don't drop enough, you lose money. If they drop a little, stay the same, or go up, you lose money.

If you calculate the Sharpe ratio of your position, it's negative. How is this Boglehead in any way?
The fed is expected to cut interest rates in the upcoming months, which would drive the financing costs below the 2-year treasury rate if held through maturity. You're paying more to finance it now, but will likely pay less to finance it later.
by ThrustVectoring
Mon Aug 26, 2019 3:53 pm
Forum: Investing - Theory, News & General
Topic: Uncle Fred’s Second Coin – The Case for Leveraged Bonds
Replies: 133
Views: 11364

Re: Uncle Fred’s Second Coin – The Case for Leveraged Bonds

Lee_WSP wrote: Mon Aug 26, 2019 2:26 pm Does the strategy require leveraging individual or packaged zero coupon bonds?

I ask because if you use futures, you don't receive the dividends right? And if dividends represent the bulk of a bond funds returns, leveraging with futures make sense there right?
The treasury futures market is very thickly traded and highly efficient. If the underlying would predictably make more money than the futures contract, then arbitrageurs would buy the underlying and short the futures contract and take a risk-free profit.

In short, even though you "don't get" the coupon payments from the underlying bonds, the futures contract is cheaper by an amount that makes the two strategies equivalent.
by ThrustVectoring
Sat Aug 17, 2019 3:52 pm
Forum: Investing - Theory, News & General
Topic: Asset location: bonds belong in taxable
Replies: 70
Views: 11357

Re: Asset location: bonds belong in taxable

I always find these sorts of return-based arguments for asset allocation to be extremely suspicious. You're baking in return assumptions into your model - a dollar in stocks is assumed to be worth more at retirement than a dollar in bonds. Why, then, are you buying bonds anywhere?

A better plan is to have some sort of parameterized stochastic model, and evaluate various plans in terms of expected value at retirement and likelihood of various levels of success. Once you're incorporating the effects of volatility and uncertainty into your model, you can actually look at the value of reducing short-term uncertainty through increasing fixed-income allocations.
by ThrustVectoring
Thu Aug 15, 2019 1:27 pm
Forum: Investing - Theory, News & General
Topic: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'
Replies: 101
Views: 12958

Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

anoop wrote: Thu Aug 15, 2019 1:14 pm What happens to the people with policies from GE if they declare bankruptcy, especially those that are actively making claims?

Any chance they would end up getting bailed out a la GM?
There's a Guaranty Association that covers policies up to certain region-specific limits when issuers go bankrupt. Also claimants will have some sort of standing to recover assets from the corpse of GE as well, not sure on details, but if that's not enough there's another backstop that society provides.
by ThrustVectoring
Thu Aug 15, 2019 1:07 pm
Forum: Investing - Theory, News & General
Topic: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'
Replies: 101
Views: 12958

Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank? It's not insider trading if they did not use material non-public information. There is nothing illegal about releasing equity research, and since they are not a broker or dealer, they are not front running any clients by pre emptively entering into a short positions. In fact, many hedge funds practice this sort of activity regularly - just not on this scale. Material non-public information is fine to use, so long as you don't acquire it from insiders at the company. If you count cars in parking lots with sat...
by ThrustVectoring
Thu Aug 15, 2019 12:00 pm
Forum: Investing - Theory, News & General
Topic: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'
Replies: 101
Views: 12958

Re: GE shares tank more than 13% after Madoff whistleblower calls it a ‘bigger fraud than Enron'

There are so many laws about insider trading and other things involved with knowledge about how a stock could go. How could it be legal for a company to take a short position and then publish information that might make the stock tank? Insider trading isn't about having an unfair advantage in the market. Being able to better price a security is an overall social good, since it means that capital is allocated more efficiently and we have more of the companies that give consumers what they want. No, insider trading is about theft . Corporate insiders have a duty to use the information acquired as part of their job in the corporation's best interest. Insider trading is a violation of that duty. The classic example is an insider buying shares ...
by ThrustVectoring
Wed Aug 14, 2019 3:49 am
Forum: Investing - Theory, News & General
Topic: First 20% of bonds in long-term Treasuries
Replies: 2259
Views: 266943

Re: First 20% of bonds in long-term Treasuries

the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?) Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage. Despite being very aggressive with our investment...
by ThrustVectoring
Tue Aug 13, 2019 2:22 pm
Forum: Investing - Theory, News & General
Topic: First 20% of bonds in long-term Treasuries
Replies: 2259
Views: 266943

Re: First 20% of bonds in long-term Treasuries

the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?) Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage. Pretty much everything else I can think of ends u...
by ThrustVectoring
Wed Aug 07, 2019 11:47 pm
Forum: Investing - Theory, News & General
Topic: First 20% of bonds in long-term Treasuries
Replies: 2259
Views: 266943

Re: First 20% of bonds in long-term Treasuries

If anything, I'd personally use TIPS instead of nominal bonds here for long-term bonds. 30 years is a long time, and any bout of unexpected inflation will do nasty things to long-term treasuries. TIPS, on the other hand, will get inflation adjustments, and at expected inflation levels will do as well as nominal bonds.
by ThrustVectoring
Wed Jul 31, 2019 2:35 pm
Forum: Investing - Theory, News & General
Topic: Merril Edge Bond screener and purchasing process is awful
Replies: 2
Views: 1015

Re: Merril Edge Bond screener and purchasing process is awful

I don't recommend buying individual bonds on the secondary market anyhow. Either use a bond fund for the liquidity, or get fixed income exposure through direct purchase of treasuries (TIPS in particular) or bank CDs (better yield because institutional players don't bid up the prices).
by ThrustVectoring
Mon Jul 29, 2019 6:46 pm
Forum: Investing - Theory, News & General
Topic: Why not aim for a HIGH YIELDING portfolio?
Replies: 60
Views: 6893

Re: Why not aim for a HIGH YIELDING portfolio?

Isn't there a case to be made to construct a portfolio that has a higher yield than what index funds pay? VTSAX pays only 1.84%. If I wanted an annual income of $80,000 I'd need $4.2 million in a portfolio yielding 1.9%. But you'd only need $842,105 from a portfolio yielding 9.5%. Of course, you'd need to load up on high-yielding stocks and other high-yield assets that are reasonably safe/reliable. Don't a lot of retirees or near-retirees do that kind of thing? What are the pros and cons? If you buy $100 of assets today, would you rather have $103 of assets + $2 of cash next year, or $100 of assets and $5 of cash? If the choices have the same total return, that's what the choice of different yields does. Total return is what matters to me ...
by ThrustVectoring
Mon Jul 29, 2019 6:38 pm
Forum: Investing - Theory, News & General
Topic: Determining your asset allocation using Funded Ratio - Part 2 of Funded Ratio series
Replies: 14
Views: 3937

Re: Determining your asset allocation using Funded Ratio - Part 2 of Funded Ratio series

bobcat2 wrote: Sun Jul 28, 2019 6:01 pm A too high stock allocation would likely give you a higher average FR, but also more results where FR <1.00 - Results with a wider dispersion.
Note that a higher average FR necessarily means that it takes a more exceptional variation in order to drive the FR below 1.00. This can more than offset the greater dispersion of results - you expect to take a big win at some point, which means you can afford to take losses leading up to that.

Also this means that time-to-retirement makes a big difference for ideal asset allocation. More time before retirement means more time that compound growth rate will drive up the expected funding ratio, which means the less any variation ends up mattering.
by ThrustVectoring
Thu Jul 18, 2019 12:57 pm
Forum: Investing - Theory, News & General
Topic: 25% SP 500 (or VT) and 75% TIPS Bonds--Not Bond Fund.
Replies: 21
Views: 2771

Re: 25% SP 500 (or VT) and 75% TIPS Bonds--Not Bond Fund.

Seems like a relatively low amount of stock, but with a 40x capital-to-expenses ratio you have a ton of flexibility on asset allocation. Also funding things 30 years out with fixed income is excessive in any case IMO.

As a minimum amount of stock, I'd use the capital ratio implied by the Trinity Study - 60% stock * 25 years of expenses = 15 years of expenses in stock. 25% stock * 40 years of expenses = 10 years of expenses in stock, which seems low.
by ThrustVectoring
Tue Jul 09, 2019 8:47 pm
Forum: Investing - Theory, News & General
Topic: Selling put options - interest paid
Replies: 17
Views: 1955

Re: Selling put options - interest paid

A put option is another way to enter an out of the money limit order. You decide that you would like to buy this stock, if it falls by a certain amount. Unlike a limit order, you collect a small premium for writing the order. Ralph They are quite different situations. XYZ trades at $50 A enters a limit order at $45 B writes a Put strike 45 and cashes, let's say, $2 Bad news! XYZ business is flawed. SEC is on their tail and may impose heavy fines. Cost of whatever raw material they use spikes up. XYZ now trades at 47 trending down A simply cancels his order in the light of these news. B instead is holding this hot potato he needs to get rid of. Too bad now the same Put trades at $3 and he loses $1 + the cost of two trades. Also, a limit ord...
by ThrustVectoring
Tue Jul 09, 2019 6:02 pm
Forum: Investing - Theory, News & General
Topic: Selling put options - interest paid
Replies: 17
Views: 1955

Re: Selling put options - interest paid

When you sell an option, you immediately get the premium in cash and have an ongoing liability to fulfill the contract. The broker will ensure that your account maintains enough value in case they need to liquidate things in order to fulfill the liabilities you have. This exchange of cash-for-assets has an implied interest rate attached to it, but that's not paid to your broker. It's paid to the person who bought the option, who has an arbitrage play (the "box spread") available to them that can convert these contracts to a guaranteed fixed payout at expiration. From your perspective, selling options will do two things. It will give your account the option premium in cash terms, giving you either extra interest-bearing cash or red...
by ThrustVectoring
Tue Jun 11, 2019 12:50 pm
Forum: Investing - Theory, News & General
Topic: Instead of bonds; why not 100% Low Vol?
Replies: 8
Views: 2930

Re: Instead of bonds; why not 100% Low Vol?

So, even assuming that 100% low volatility has had about the same risk and return as 70/30, what is the point? Is it just some kind of tour-de-force to show that you can do without bonds? Historically though you have had the same risk but higher returns. Larry did an article a while back on this (https://www.etf.com/sections/index-investor-corner/swedroe-factor-caveats). In then end, you are going to get into some variation of factor investing (low volatility is more a combo of a couple of factors than a pure factor) which requires the investor to have faith in it. Personally I think you are off in crazy land if you 100% on something like this. Now maybe going 40% VTI, 30% Low vol, 30% bonds instead of 50/50 total/bonds might work out to h...
by ThrustVectoring
Tue Jun 11, 2019 12:43 pm
Forum: Investing - Theory, News & General
Topic: The impact of Baby Boomers on the Future of U.S. Stocks
Replies: 41
Views: 6366

Re: The impact of Baby Boomers on the Future of U.S. Stocks

But there are some countervailing ones. For example that liquidations of stock by retirees might pick up eventually after not being so high early in their retirement. And, it doesn't necessarily take a large % of holders to sell something to lower the market clearing price substantially. Would you imagine that if boomers are gradually selling, then millennials and others are gradually buying? There's always a buyer for every seller. That doesn't tell you what the price will be. Retiree consumption comes from one of three sources - physically storing goods for later consumption, tax transfers from workers, and selling financial assets to workers. The first category is small enough to be negligible, so it's pretty much all "taxes or sav...
by ThrustVectoring
Tue Jun 11, 2019 12:28 pm
Forum: Investing - Theory, News & General
Topic: Is it bad to look at debt (student loans) like this?
Replies: 39
Views: 3980

Re: Is it bad to look at debt (student loans) like this?

The two scenarios are quantitatively different. While they're the same now, they have differing personal financial risks. For example, suppose you want to take FMLA leave to care for a newborn. This is twelve weeks unpaid, or roughly a quarter of your annual salary in missed income. The person with a student loan and higher wage will need to have more cash savings in order to be able to afford to do this. On the other hand, suppose you're looking for a new job. It's significantly easier to find a better-paying job when you don't make as much money, simply due to how many jobs there are at each pay level. In short, earning a salary comes with a bundle of risks, and your financial situation cannot be entirely captured by the paycheck from it....
by ThrustVectoring
Mon Jun 10, 2019 3:04 pm
Forum: Investing - Theory, News & General
Topic: AA : willingness, ability, need
Replies: 24
Views: 2863

Re: AA : willingness, ability, need

The need part is pretty straightforward to me: taking on equity risk earns a premium, and you need money. All the "need" portion says - to me at least - is that you should take on as much equity risk as you can afford to, given your future cash flow needs and emotional fortitude. With a long enough timeline, the best approach IMO is to protect the money you'll expect to need (emergency fund etc), and take whatever risks pay well enough with the money you know you won't need (100% equity is fine here). I'll probably revisit my asset allocation when I've got 10 years of expenses saved up or so. So does a 60 year old with $10 million and annual expenses of $200k 'need' any equity exposure at all? If this person is willing and able t...
by ThrustVectoring
Mon Jun 10, 2019 2:46 pm
Forum: Investing - Theory, News & General
Topic: Instead of bonds; why not 100% Low Vol?
Replies: 8
Views: 2930

Re: Instead of bonds; why not 100% Low Vol?

The lack of correlation between low volatility or bet-against-beta strategies tends to disappear during times of crisis (eg, 2008). The actual amount of allocation or leverage you can use is less than what the data from normal periods suggests, and then you're left holding a bunch of lower-yielding assets. This is fundamentally the same reason why selling volatility doesn't help you as much as the naive math suggests. You're taking on more downside risk in precisely those situations where downside risk can ruin you, which reduces how aggressively you can chase returns. Meanwhile, the funds you're using have more turnover and higher management fees. (There's also a high level signal-processing argument that you want to amplify (have a higher...
by ThrustVectoring
Mon Jun 10, 2019 2:21 pm
Forum: Investing - Theory, News & General
Topic: AA : willingness, ability, need
Replies: 24
Views: 2863

Re: AA : willingness, ability, need

The need part is pretty straightforward to me: taking on equity risk earns a premium, and you need money. All the "need" portion says - to me at least - is that you should take on as much equity risk as you can afford to, given your future cash flow needs and emotional fortitude. With a long enough timeline, the best approach IMO is to protect the money you'll expect to need (emergency fund etc), and take whatever risks pay well enough with the money you know you won't need (100% equity is fine here).

I'll probably revisit my asset allocation when I've got 10 years of expenses saved up or so.
by ThrustVectoring
Sun Jun 09, 2019 3:10 pm
Forum: Investing - Theory, News & General
Topic: indexers buying negative interest bonds
Replies: 46
Views: 5988

Re: indexers buying negative interest bonds

What's the point of negative interest bonds? Who invests in this stuff? Institutions who wants to keep their money safe. If you have 10 million Euros you are not willing to risk, what are your alternatives? ... Buy foreign denominated debt: The cost to hedge the currency fluctuations exceeds the interest you can earn A while ago when the US 10 year was over 3% I did a calculation on what the $/euro exchange rate would have to be at the end of the period to make the rate negative. currently it costs you $1.13 to buy a euro. buy a $1000 3% 10 year Treasury bond. That costs 885 euros at the end of 10 years the bond plus interest is worth $1300. At today's exchange rate that is 1150 euros Instead buy a negative 1% bond. At the end of 10 years ...
by ThrustVectoring
Sat Jun 01, 2019 7:11 pm
Forum: Investing - Theory, News & General
Topic: are TIPS expensive? or are they cheap?
Replies: 204
Views: 25149

Re: are TIPS expensive? or are they cheap?

TIPS are currently priced like the treasury's 2% inflation target will consistently get undershot like they've been doing under the current economic policy. This can easily change - the undershoot is because the treasury is unwilling to take into account previous undershooting into future inflation control. Your cruise control will do this - if you've consistently been going slower than you want for enough time, it'll adjust itself to feed more gas to prevent long-term divergence. "Control theory" is taught to electrical engineering undergrads, and this is a pretty straightforward application of it. I'd honestly be surprised if the fed doesn't start announcing its plans to correct for future under-inflation in the future. And for ...
by ThrustVectoring
Sat Jun 01, 2019 6:57 pm
Forum: Personal Finance (Not Investing)
Topic: Buying an investment property while renting an apartment?
Replies: 24
Views: 2654

Re: Buying an investment property while renting an apartment?

Generally speaking you're better off buying the house you live in - there's significant tax and mortgage underwriting advantages for doing so. For one thing, the rent you pay and the rental income you collect do not offset. If you collect $1500/mo in rent and pay $1500/mo in rent, you have to pay income taxes on the $1500/mo in rent. It's offset by business expenses related to maintaining the investment property, somewhat, but still puts you behind simply having an owner-occupied home.
by ThrustVectoring
Tue May 28, 2019 8:56 pm
Forum: Investing - Theory, News & General
Topic: [Nominal] Annuities are a bet on future inflation rates and should not be purchased by retirees
Replies: 183
Views: 16820

Re: Annuities are a bet on future inflation rates and should not be purchased by retirees

While I understand the theoretical argument, from a practical perspective is it possible to by an inflation indexed SPIA? From comments I’ve read on this forum I thought not but would be glad to be pointed in the right direction. I bought an annuity that has a 2% COLA a couple of months ago. The COLA feature reduces my initial payout by almost 20% but I considered it to be worth it. TravelforFun A cost of living adjustment isn't the same thing as a CPI or other inflation adjustment. You're still a net inflation payer, since you get a 2% COLA regardless of what inflation actually does, while your actual expenses can vary over time. I disagree with the broad conclusion that one should only buy an inflation adjusted annuity. If a retiree has ...
by ThrustVectoring
Wed May 22, 2019 1:54 pm
Forum: Investing - Theory, News & General
Topic: Why not non traded REIT such as yield tree?
Replies: 25
Views: 8077

Re: Why not non traded REIT such as yield tree?

Okay, yield tree has been blasting advertisements on my computers and iphones and youtube videos. As a general rule, any investment that gets aggressively pushed at you through paid channels (salespeople, advertising, commission-based "advisers", etc) is a poor choice to invest in. Before fees, the average investment is as good as investing in a low-cost index fund that invests in pretty much everything. The paid promotion gets paid out of your money in the end, though, so you can pretty well guarantee that you'll wind up paying more in fees than you need to. In short - these ads cost money, and by investing based off them you end up paying for them. I'm sure these people believe in their own sales pitch, but on average investing...
by ThrustVectoring
Wed May 22, 2019 1:16 pm
Forum: Investing - Theory, News & General
Topic: just a general comment about "too conservative" investors here
Replies: 220
Views: 34467

Re: just a general comment about "too conservative" investors here

So one of the under-appreciated things about optimization in general is that when you're near a maximum, the landscape is pretty flat. Small changes make relatively little difference. If you're not taking "enough" risk, or having "too little" international equity, or have less than 5% of your assets in gold, or whatever, it makes little practical difference. Like, the "ideal" investment plan is to have all the money you know you won't need in low-cost stock index funds, at a high fraction of the Kelly Criterion in terms of leverage, with the rest in safe assets that you know you can access if you need it. That's the "correct" amount of risk to take - technically the full Kelly Criterion is "optim...
by ThrustVectoring
Wed May 22, 2019 1:03 pm
Forum: Investing - Theory, News & General
Topic: Any option traders?
Replies: 94
Views: 13623

Re: Any option traders?

SovereignInvestor wrote: Wed May 22, 2019 11:31 am
You're example isn't really a naked put because it's secured by the cash from bond.

Naked put usually implies no cash backing the contract that requires you to buy the stock potentially.

A covered Call and owning stock is like a cash secured put. Not a naked put.
It's naked put writing as opposed to covering the put by shorting the underlying, which is the bearish version of a covered call.
by ThrustVectoring
Tue May 21, 2019 12:20 pm
Forum: Investing - Theory, News & General
Topic: Delaying social security = harming nest egg?
Replies: 74
Views: 7928

Re: Delaying social security = harming nest egg?

Delaying social security is equivalent to annuitizing a portion of your retirement fund. This has the effect of decreasing your expected inheritance if you die before the actuarial tables predict, and increasing your expected inheritance if you live longer. Overall, this really depends on how healthy you are and how concerned you are about potentially outliving your nest egg.
by ThrustVectoring
Fri May 17, 2019 3:49 pm
Forum: Investing - Theory, News & General
Topic: Bonds beyond Total Bond Market - Anyone ?
Replies: 47
Views: 5154

Re: Bonds beyond Total Bond Market - Anyone ?

confusedinvestor wrote: Thu May 16, 2019 8:44 pm Just had a portfolio review with a firm and they recommend "diversification" of Total Bond Market with TIPS, Floats, High Yield, etc....
A "portfolio review" is an euphemistic term for a sales pitch, usually. They get paid when they convince you to move investments into their products or use some paid services or something.

Bonds need to do exactly one thing - be a far more stable place to park your money than stocks are. You can get away with cash in an interest-bearing savings account, or individual treasury bonds, or I-bonds, or CDs, or whatever. Basically doesn't matter as long as you know the money is going to be there when you need it, largely unaffected by market movements.
by ThrustVectoring
Thu May 16, 2019 2:44 pm
Forum: Investing - Theory, News & General
Topic: We’ve won the game...but how do we stop playing?
Replies: 76
Views: 9671

Re: We’ve won the game...but how do we stop playing?

Does your grandmother intend to leave significant amounts of money to charity? If so, donating appreciated securities to a donor-advised fund or directly to charities can be a fantastic way to manage exposure while achieving charitable goals. Alternatively, you can just manually market-cap weight the sector holdings. You pay more in expenses and have additional complexity, but Vanguard's sector funds are cheap enough that it'll likely work out better than realizing a bunch of capital gains. If she still has Roth or tax-deferred accounts, she can do some tax-free rebalancing there to improve things. Perfect is kind of the enemy of good here, too. She's saved enough money and invested it in low-cost diversified stock funds. Over-weighting hea...
by ThrustVectoring
Tue May 14, 2019 2:02 pm
Forum: Investing - Theory, News & General
Topic: Should one diversify into annuities and not bonds?
Replies: 18
Views: 2671

Re: Should one diversify into annuities and not bonds?

There's two big factors for annuities that you missed:

1. The mortality credits means that these contracts do not benefit your heirs or any charities in your estate. You might care a lot about this, and if so annuities are a poor choice.

2. Annuity contracts and their proceeds are often afforded better protection from creditors, especially in states like Texas. It isn't an asset you can sell, so if a medical billing snafu attempts to saddle you with a six-figure "debt" there's little they can do to force payment.
by ThrustVectoring
Sun May 12, 2019 10:54 am
Forum: Investing - Theory, News & General
Topic: Asset Location
Replies: 11
Views: 2373

Re: Asset Location

If you do have a taxable account (many do not), do not despair about having to sell in taxable to get needed money. Have an emergency fund. If your needs exceed the emergency fund, sell stocks in taxable and then sell bonds and buy stocks in tax-deferred accounts. That way, you are actually selling bonds, not stocks. Depending on your personal situation, the best plan may be to take a margin loan against your taxable account stock holdings and to sell an equivalent amount of stocks for bonds in your tax deferred account. You end up paying the rather minimal spread between margin loan rates and bonds, rather than hefty capital gain taxes. One big factor involved is the size of the withdrawal compared to your taxable account - personally, I'...
by ThrustVectoring
Fri May 10, 2019 6:09 pm
Forum: Investing - Theory, News & General
Topic: Any conservative young investors?
Replies: 79
Views: 11122

Re: Any conservative young investors?

28 living in a medium-high COL area. I'm currently at 80/20 but I have been sorely tempted to just go all-in with one of Vanguard's balanced funds at 60/40. My reasoning is that I don't necessarily need to take the risk. I have a 60% savings rate on a mid-six-figure income and based on historical returns, the difference between 100/0, 80/20 and 60/40 won't really make a huge impact on when I reach financial independence. My FI plan is based on a 3% withdrawal rate and based on my current savings rate, I'll hit it in about 10 years either way. If I don't the returns, why suffer the volatility? My reasoning is somewhere along those lines. In all my calculations, the biggest factor always seems to be how much I invest. If stocks return 6% rea...