IT Treasury vs. Total Bond in Three Fund Portfolio

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Kevin K
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IT Treasury vs. Total Bond in Three Fund Portfolio

Post by Kevin K » Mon Jun 27, 2016 4:15 pm

Thanks to much wise counsel on this board I've basically adopted the three fund portfolio, but with Vanguard's Intermediate Term Treasury fund filling in for the Total Bond fund.

As a fan of Harry Browne's Permanent Portfolio and having lived through the '08 crash I originally chose the treasuries since they uniquely benefit from "flight to safety" as we've seen again in the past few days. Add to that IT Treasury out-performing Total Bond and the interest on Treasuries not being subject to Federal Taxes and I wonder why it isn't the default choice for the three fund approach. I am probably missing something glaringly obvious, in which case I apologize in advance.

arf30
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Re: IT Treasury vs. Total Bond in Three Fund Portfolio

Post by arf30 » Mon Jun 27, 2016 4:17 pm

I do the same as you (VSIGX), don't think there's a right or wrong answer here.
Last edited by arf30 on Mon Jun 27, 2016 4:21 pm, edited 1 time in total.

Whakamole
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Re: IT Treasury vs. Total Bond in Three Fund Portfolio

Post by Whakamole » Mon Jun 27, 2016 4:19 pm

Kevin K wrote:the interest on Treasuries not being subject to Federal Taxes
Not true. Treasuries are not subject to state and local tax, but you still pay Federal tax.

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Doc
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Re: IT Treasury vs. Total Bond in Three Fund Portfolio

Post by Doc » Mon Jun 27, 2016 4:46 pm

Kevin K wrote:Thanks to much wise counsel on this board I've basically adopted the three fund portfolio, but with Vanguard's Intermediate Term Treasury fund filling in for the Total Bond fund.
In replacing TBM I prefer to use a BarCap Intermediate Term Gov/Credit (1-10) fund instead of Vanguard's Intermediate Term Index (5-10 and also gov/credit). The Vanguard Intermediate Term Treasury (3-10) has an intermediate duration. (The latter may also have some securitized securities. Morningstar and Vanguard have differing sector allocations but I question where Vanguard puts the Agency MBS sector. Is it Government or securitized?)

I think the choice depends on your portfolio size, your AA, your rebalancing criteria and your time frame. But in any case total bond seems to me to have all the negatives of the others with the exception that it is "easy" and is the Boglehead's traditional choice.

Unlike Kevin I don't ascribe to the three fund portfolio and as a result have a large allocation to both nominal and inflation protected Treasuries in the form of a ladder hence no need for an additional Treasury fund.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

Day9
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Re: IT Treasury vs. Total Bond in Three Fund Portfolio

Post by Day9 » Mon Jun 27, 2016 4:50 pm

I've read a respected poster here say something like "If Total Bond Index is a sin, it's a misdemeanor not a felony"

Coincidentally, Larry Swedroe just published this ETF.com blog post titled "Swedroe: Consider Factors In Fixed Income"

Some studies have shown that credit risk is affected by the same factors as stock market risk. So to maximize diversification and minimize fees it is best to not expose your bond portfolio to this risk and instead focus on other factors (like duration risk).

On the other hand, some people take the opposite approach and tilt more strongly to corporate bonds while holding TBM. I'm not sure about the specifics of their arguments but I know that TBM fund doesn't really accurate the whole world of fixed income securities as it deliberately does not represent some major fixed income investments like Muni bonds.
I'm just a fan of the person I got my user name from

Topic Author
Kevin K
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oops!

Post by Kevin K » Mon Jun 27, 2016 5:51 pm

Whakamole wrote:
Kevin K wrote:the interest on Treasuries not being subject to Federal Taxes
Not true. Treasuries are not subject to state and local tax, but you still pay Federal tax.
Right you are! Thanks for correcting my mistake.

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