Blowout [poor] investment RYJUX and replace with what?

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3nickles
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Blowout [poor] investment RYJUX and replace with what?

Postby 3nickles » Thu Apr 20, 2017 6:41 pm

I have a Fidelity (non IRA) taxed account. I've learned my lesson regarding investing and the radio shows. Back in May of 2004 off a buddy's advice, I listened to Doug Fabian (Maverick investing) and at the current time he suggested holding your investment stash (taxed account, non IRA) 100% in RYJUX Juno funds Inverse Govt. L mutual funds. So I plunked down my "play" money (savings that I ear marked for growth in the stock market) and invested 20K. Bad move... as after buying the funds, my investment sloooowwwllllllyy lost money year after year after year. This is supposed to gain $ in a rising interest rate world and of course since 2004 interests have dropped, dropped and dropped :oops:

So my initial investment sits at roughly $6600. I've grown "tired" of waiting for interest rates to rise and looking at the beating my portfolio has taken and I am considering just blowing it out, using the loss to offset my future federal taxes and investing in something that actually has a chance to grow before I retire in about 14 years. Or I guess I can just let it sit but I don't know if I'll ever recoup my initial investment in a reasonable timeframe?

My main retirement funds are help in my 401k which is aggressively invested at about 98% stocks (18K max deducted + 6K additional catchup over age 50 each year). 401K is currently at about $700K.

So knowing that I'm already extremely aggressive in my 401k, can I ask for advice/suggestions on low cost stocks, funds to replace without overly being too aggressive?

lack_ey
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby lack_ey » Thu Apr 20, 2017 7:12 pm

Okay, so it's supposed to track before fees and costs the daily performance of long Treasury bonds. Seems to more or less be as advertised (TLT is just a long Treasury fund, not an exact mirror even on a daily scale):
Image

This is not the kind of investment you would expect to break even in general over time. Rates would have to go up a lot (way more than anybody expects, and far above where they were when you bought in) for you to realize the kinds of gains you'd require for that. I doubt it's ever happening, especially given the fees and construction (think leverage rebalancing, the nature of inverse funds). You should expect negative returns in general. Approximately five years ago, the 30-year Treasury rate was about 3%. The cumulative return from then to about last month when the rate was still 3% was about -20% for the fund.

In general it's not a good idea to anchor onto past prices when making decisions today. This is overall just not a good investment. It's something that some people might use for some market timing and trading, generally shorter term, with the expectation that their bet is going to pay off over a certain period XYZ, with a known exit strategy.

If in doubt and you don't particularly have any ideas about what stocks to invest in, use something like a Vanguard Total Stock Market Index Fund (or equivalent international stock fund). That's cheap and diversified. If you're willing to use ETFs some others have very similar offerings in that space.

Conventional wisdom among most investing crowds is that ~15 years out from retirement is about time to consider reducing reliance and exposure to equity risk so some would suggest going long bonds. Or cash/CDs/other fixed income. Just not something related to the stock market.

ulrichw
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Re: Blowout turd of an investment RYJUX and replace with what?

Postby ulrichw » Thu Apr 20, 2017 7:45 pm

3nickles wrote:[...]
So knowing that I'm already extremely aggressive in my 401k, can I ask for advice/suggestions on low cost stocks, funds to replace without overly being too aggressive?


Directly answering your question first: Given the forum you're on, the answers simple: Invest in a simple three fund portfolio.

Now for the real answer: We're talking $6,600, which is less than 1% of your overall portfolio, right? And it sounds like you're still working and saving, so you'll be adding far more than this into your retirement portfolio.

Why not keep this as your "play money" account? Work out your "gambling" urges in this account and only in this account. I'd recommend looking at options as a way to make highly leveraged bets on short-term moves. Keep playing until you lose all your money, and then close the account. Who knows, you may get lucky and be able to make a killing.

I'm completely serious about this, btw. (I'm happy with my optionshouse.com account for this type of use)

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jimb_fromATL
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby jimb_fromATL » Thu Apr 20, 2017 8:13 pm

Never heard of it until now, but after looking up its history, buying and holding seems like bad advice.

According to the yearly performance data on Yahoo, the geometric mean -- or CAGR (Compound Annual Growth Rate) -- for RYJUX for total return on a single lump sum for 21 years from 1996 through 2016 has been -5.41%. A lump sum of $10,000 would have grown dropped to $3,107.

Perhaps more meaningful for investing periodically such as in an IRA or 401(k), the APY ( CAGR) for dollar-cost-averaging in RYJUX with periodic investments has been -6.9%. Investing $1,000 at the beginning of each year would give you $10,482 by the end of 2016. That's for your investment of $21,000.

If you had put the lump sum under the mattress, it would be worth $10.000 in the same time frame. Dollar-cost averaging by putting $1,000 in a hole in the ground at the beginning of each year would give you $21,000 by the end of 2016.

jimb

3nickles
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby 3nickles » Thu Apr 20, 2017 8:42 pm

lack_ey wrote:
If in doubt and you don't particularly have any ideas about what stocks to invest in, use something like a Vanguard Total Stock Market Index Fund (or equivalent international stock fund). That's cheap and diversified. If you're willing to use ETFs some others have very similar offerings in that space.

Conventional wisdom among most investing crowds is that ~15 years out from retirement is about time to consider reducing reliance and exposure to equity risk so some would suggest going long bonds. Or cash/CDs/other fixed income. Just not something related to the stock market.


So here's the total picture. Went I got burnt on this investment advice I started taking my bonuses and extra salary and dumping into high earning savings account so that I had no risk of losing it again. So about 13 years later I have approximately $240K in an Alliant Savings account earning 1.05% currently.

That savings account funds my vehicles (which I pay for cash when I need one, every 7-8 years or so), my son's college which he recently started, my 6 mo to 1 yr emergency savings for layoff/loss-of-job etc. and other large purchases that I choose to pay cash for. I have 0 debt with the exception of my main house mortgage which has a $145K balance and is worth about $300K right now.

So the 2 sided question is what to do if anything to my Alliant account money and/or the 6600 left in my Fidelity IRA. I know that I could stand to gain if I invested that $240K but I've already been bit once by the market and I just don't want to expose that savings egg to the market if I don't have to? Especially if I'm going to be needing cash soon for a vehicle replacement and college expenses...

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nisiprius
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby nisiprius » Thu Apr 20, 2017 9:06 pm

3nickles wrote:...Back in May of 2004 off a buddy's advice, I listened to Doug Fabian (Maverick investing) and at the current time he suggested holding your investment stash (taxed account, non IRA) 100% in RYJUX Juno funds Inverse Govt. L mutual funds...
Yikes! That's terrible!

Please take a moment to go read Inverse and leveraged ETFs (all the same comments apply to funds).

The problem is not necessarily the idea of shorting government bonds, it's a failure to understand what inverse funds do and how they work. I'm sure you know that actually shorting any security is risky, because you can lose more than you invested and there's actually no limit to your possible losses. You can't short securities in an ordinary brokerage fund, you have to sign off on special agreements to do it. Now, you can buy an inverse fund or ETF in any old ordinary account, and while you can lose everything you put into it, that is the limit. Are they a way to short without the risk? No, that's the financial equivalent of magic or perpetual motion, it's not possible.

Your first warning about RYJUX should be that there are only $126 million invested in it. Well, OK, that's a lot of money compared to my portfolio, but seriously. "Normal" big, mainstream, well-known mutual funds have many billions of dollars invested in them. Vanguard's long-term Treasury bonds, which just invests in bonds--the other side of the bet--has $3.4 billion in it. OK, not apples-to-apples, but lots of people are nervous about "bonds" and if people are putting billions of dollars into the "bonds are OK" side of the bet, the fact that you are only seeing numbers like $126 million on the other side of the bet should set off alarm bells in your head. Many people might like to bet that bonds will fall, over, let's say, "the next few years," but RYJUX is not a good way to do that.

Please go to the prospectus for RYJUX here and actually read the description... particularly the parts printed in light grey type... particularly these bits:
Inverse and leveraged Funds are not suitable for all investors. •These Funds should be utilized only by investors who (a) understand the risks associated with the use of leverage, (b) understand the consequences of seeking daily leveraged investment results, (c) understand the risk of shorting, and (d) intend to actively monitor and manage their investments.... Daily rebalancing will impair a fund’s performance if the benchmark experiences volatility. Investors should monitor their leveraged and inverse Funds’ holdings consistent with their strategies, as frequently as daily.
What they are not saying, as clearly as I think they should, is that this fund is just not suitable for "buy and holding" investing. It is only suitable for, basically, short-term speculators who want to place short-term bets on what's going to happen over periods of days.

If you think you know what Janet Yellen is about to announce, better than the market does, and you want to go in before the announcement and out after it... if you've decided that's what you want to do, RYJUX could be a sensible way to do it. Not so if you just think something like "I feel sure that the 10-year Treasury rate will go up sometime during the next few years, I'd like to make some money if I'm right about that."

You can see the problem over this (selected) time period here, when bonds really did take a hit. What I want you to see is how even when you are right, you lose if you hold for more than a short time. This is a price chart rather than my usual growth chart.

Source

Image

See what happened here? RYJUX does its job faithfully over short periods of time, mirroring VUSTX and going up whenever VUSTX goes down. But the combination of daily volatility and daily rebalancing creates a strong downward trend over this time period. The downward trend is not because of bonds trending up over that time period! Over that time period, the price per share of the bond fund went down by -9%! So bets on bonds going down should have won! Yet RYJUX not only did not turn in a profit for that time period, it went down more than VUSTX!

Every time bonds when down, RYJUX went up, but the little lifts up added up to less than the inexorable drift down.

Leveraged and inverse funds are seriously unsuitable for any kind of long, or even medium-term buy-and-hold investing. They are not a low-risk way to bet a contrarian bet. Even when you are "right" about the bet, as in the period of time shown here, you can still lose. The long-term volatility drag from daily rebalancing is a killer.
Last edited by nisiprius on Fri Apr 21, 2017 7:53 am, edited 2 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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nisiprius
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby nisiprius » Thu Apr 20, 2017 9:26 pm

3nickles wrote:...I've grown "tired" of waiting for interest rates to rise...
They did rise. Right here. Not an apocalypse, but a real rise, not just a little fluctuation. I could see it in the bank account rates posted in my local bank. The thing you wished for happened.

And furthermore, when it did happen, RYJUX did go up. If you'd known, or guessed, or just been lucky, and bought RYJUX ahead of the rise and sold just after it, you'd have made money. But when the thing you wished for happened, it didn't pay off the way you expected it to. That's because your fund, RYJUX, betrayed you--you didn't understand how it works or what it does. The opportunity to make money off the rise in rates only existed if you were able to make a short-term speculative move and get in an out for a short time. Long-term, the overall downward drift of the fund ate up all the gains.

Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

3nickles
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby 3nickles » Fri Apr 21, 2017 3:05 pm

Yep I'm admitting my ignorance and lack of knowledge of the stock market. Guilty on both counts..

But that's exactly why I signed onto this forum and asked for assistance in replace these funds in my Taxed Fidelity account :)

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jimb_fromATL
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby jimb_fromATL » Fri Apr 21, 2017 3:12 pm

nisiprius wrote:
...
If you think you know what Janet Yellen is about to announce, better than the market does, and you want to go in before the announcement and out after it... if you've decided that's what you want to do, RYJUX could be a sensible way to do it. "


... much like saying that if you want to get rid of some money that you know you will never want to use, it could be more sensible to shred it and use it for mulch on the garden instead of burning it and polluting the atmosphere. :twisted:

jimb

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Re: Blowout [poor] investment RYJUX and replace with what?

Postby PandaBear » Fri Apr 21, 2017 3:19 pm

For a taxable account, I'd sell your RYJUX and buy VOO (Vanguard S&P 500 ETF). It is really good at putting out only qualified dividends and almost no short-term/long-term capital gains. Or if you want to stick to bonds, buy MUB (iShares National Muni Bond ETF).

clip651
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby clip651 » Fri Apr 21, 2017 3:24 pm

3nickles wrote:Yep I'm admitting my ignorance and lack of knowledge of the stock market. Guilty on both counts..

But that's exactly why I signed onto this forum and asked for assistance in replace these funds in my Taxed Fidelity account :)


I don't think anyone here is trying to make you feel bad or guilty. They are trying to help you understand what you own. (One of your questions was whether it might be worth it to hang onto this investment to try to make your money back.)

Picking what funds to replace this with depends on your goal for this money. You could move the money into a money market fund at Fidelity for the moment while you are deciding. At least that will prevent you from losing any more money in this investment that appears to be completely inappropriate for you. (And if you are wanting to move this money into bonds, knowing your tax bracket is important to figure out which fund makes the most sense in a taxable account.)

But since this is a very small part of your overall portfolio, it may make more sense to get input from this board on your overall situation, rather than just focusing on this one account. Start a new thread following the format shown here:
viewtopic.php?f=1&t=6212
It may take you a bit of time to gather the information for this type of post, but you will learn a lot by doing it.

Then people here can help you with your overall situation. For example, by your description, your 401k is very aggressive, and yet given your age you may want to consider adjusting your asset allocation to include some/more bonds as you approach retirement. The 401k could be a logical place to put some bonds. But we can't make good suggestions without having a better view of the overall picture - we don't know what you have in your 401k, and what other funds are available, among many other factors.

best wishes,
cj

3nickles
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby 3nickles » Fri Apr 21, 2017 9:59 pm

OK CJ you asked. Here's the full monty..

I am 51 (wife is 50) and we are targeting retirement at around age 65 so I/We have about 14 years left in the workforce.

Our Married filing jointly AGI was $152,815 this year, with taxable income of $113,095. We live in Illinois with state sales tax of 7.075% and pay State Income Tax (paid 3.3% tax on Income this year), Federal (paid 13% of taxable income). We have NO other types of debt (credit, car, student loans etc) other than our primary house mortgage (below):

Mortage: 30 year fixed at 4.75% (initiated 2011) original loan balance of $193,000. We have been paying additional $500 toward principal the last 4 years. We currently owe $145,000 and debating whether to refi to 10 year fixed rate at 3.125% to save some interest $ prior to retirement or just continue as is contributing the extra principal toward payoff?

I am contributing the max allowed (18,000) to my company 401K and I am the bread winner of the family. I recently opted for the additional catch-up contribution of 6K to the 401K. My 401K is aggressive and with the current market sits at about $650K. My wife works full time for a very modest salary and has an rollover IRA from here other employers valued at about 100K but not currently contributing because she will be vested with a small retirement pension in another 5 short years (monthly payroll deductions to IMRF pension fund (Illinois Municipal Retirement Fund), vested and gets pension with 5 more years of service. I'm honestly not sure WHAT if anything my wife can contribute to an IRA (or other retirement account) and gain tax savings?

* Sooooo, knowing my portfolio is very aggressive, I'm contemplating the folowing 3 options:

1) Move a large portion of my company match $ (AT&T stock; currently 32% of portfolio) to the Bond Fund and the International Fund to diversify portfolio based on a recent analysis/suggestion from Financial Engines (30% bonds, 50% US Stock, 20% Intern. Stock).

2) Leave as is, as portfolio has recovered quite well form the 2008/2009 crash with the recent run-up in the market

3) Take entire allocation (below) and move everything into Fidelity Asset Allocation 2030 which will automatically adjust allocations toward my retirement target (currently carries My allocation is as follows:


Name/Initial Purchase Date Category % Invested Balance Cost Basis YTD Expense Ratio
AT&T SHARES FUND 10/24/2011 Specialty 32.41% $203,489.56 $153,907.46 -2.36% .01%
LG CAP US STCK INDEX 10/24/2011 Large Ca 26.03% $163,402.41 $80,983.92 5.35% .01%
SM & MID US STK INDX 10/24/2011 Mid-Cap 19.84% $124,559.61 $71,061.07 3.21% .02%
TOTAL US STOCK INDEX 10/24/2011 Large Cap 12.85% $80,665.19 $41,342.07 4.98% .01%
INTL STOCK INDEX 10/24/2011 Inter. 7.23% $45,361.13 $39,735.83 7.93% .02%
AT&T TOT RETURN BOND 10/24/2011 Income 1.64% $10,315.89 $8,292.79 1.98% .38%

* AT&T ASSET ALOC 2030 11/01/2007 Blended* 0% 0% 0 5.57% .18%


Lastly, my total liquid Savings is $278K in 3 bank accounts (diverse for highest interest including $25K Kasasa account earning 2.5% interest, 10K in credit union earning 3% and remaining balance ~ 243K in Alliant Savings earling 1.1%). My savings is for purchasing new vehicles for cash, helping my son pay for college (just started tech school/college), loss of job 6 month savings and other large purchases that I don't want to use credit to pay for as the mortgage is my only outstanding debt. Any advice for investing the remaining 243K without subjecting myself to a large amount of additional market risk?

3nickles
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby 3nickles » Thu Apr 27, 2017 7:22 pm

bump for CJ and other advice/opinions:

Dottie57
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby Dottie57 » Thu Apr 27, 2017 8:15 pm

The main thing is to drastically reduce your ATT shares. Too much to have in one company. Diversify.


Have at least 20% in bonds ofmsome sort. You have a lot of duplication between US total stock. And Large cap fund. Pick one or the other.

If I were you I would go
large cap/ total us stock 44.8%. (80% of U.S. Stocks)
Mid / small. 11.2%. ( 20% of U.S. Stocks)
International. 14%. ( 20% of all stocks)
Bonds. 30%

3nickles
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby 3nickles » Thu Apr 27, 2017 8:49 pm

Dottie57 wrote:The main thing is to drastically reduce your ATT shares. Too much to have in one company. Diversify.


Have at least 20% in bonds ofmsome sort. You have a lot of duplication between US total stock. And Large cap fund. Pick one or the other.

If I were you I would go
large cap/ total us stock 44.8%. (80% of U.S. Stocks)
Mid / small. 11.2%. ( 20% of U.S. Stocks)
International. 14%. ( 20% of all stocks)
Bonds. 30%


Thanks Dottie.

So you recommend going with the above allocation and then re-balancing every so often as I get closer to retirement as opposed to just putting everything into the "Fidelity Asset Allocation 2030 (.18% fees) which would more or less be a set it and forget it approach?

Dottie57
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Re: Blowout [poor] investment RYJUX and replace with what?

Postby Dottie57 » Thu Apr 27, 2017 8:57 pm

3nickles wrote:
Dottie57 wrote:The main thing is to drastically reduce your ATT shares. Too much to have in one company. Diversify.


Have at least 20% in bonds ofmsome sort. You have a lot of duplication between US total stock. And Large cap fund. Pick one or the other.

If I were you I would go
large cap/ total us stock 44.8%. (80% of U.S. Stocks)
Mid / small. 11.2%. ( 20% of U.S. Stocks)
International. 14%. ( 20% of all stocks)
Bonds. 30%


Thanks Dottie.

So you recommend going with the above allocation and then re-balancing every so often as I get closer to retirement as opposed to just putting everything into the "Fidelity Asset Allocation 2030 (.18% fees) which would more or less be a set it and forget it approach?



This or something close. The U.S. stocks are pretty much market weight.
Bonds are good in that they even out the rough spots in Investing. I am 60, so I want a more level experience. When I was younger i was at 80/20 stocks/bonds. Now I am at 50/50.

Remember before you can invest, you have to not spend. It does pay off.


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