Has the "bond bubble" caused you to change your allocation?

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randomizer
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Re: Has the "bond bubble" caused you to change your allocation?

Post by randomizer » Tue Aug 01, 2017 8:32 pm

whodidntante wrote:Did you increase your allocation to a stable value fund, or invest in an equity market neutral fund, managed futures, reinsurance, or other alternative funds? Did you begin to favor direct CDs over bond funds, shorten your duration, or take out a low rate loan as an inflation hedge? Did you buy "bond proxies?" Did you change the mix of bonds that you hold to overweight corporates, high yield bonds, emerging market bonds, agency bonds, or treasuries?
I am very boringly staying the course with my very simple 3-fund portfolio.

student
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Re: Has the "bond bubble" caused you to change your allocation?

Post by student » Tue Aug 01, 2017 8:41 pm

I do not hold much bond funds. I prefer TIAA Traditional as fixed income.

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whodidntante
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Re: Has the "bond bubble" caused you to change your allocation?

Post by whodidntante » Tue Aug 01, 2017 8:43 pm

I've posted all of this before but never really in one place. I've responding to the current environment in the following ways:

1. I got over my debt aversion and purposely took on a significant amount of low interest debt. The blended rate after tax is 1.8%, which is approximately free money after inflation. And it's an inflation hedge if we are suddenly faced with high inflation. I've been doing that for a while now, and I've reached the point that I don't want to further increase leverage in this way.
2. I bought AQR Equity Market Neutral and AQR Long-Short Equity to gain alternative sources of return.
3. I bought a stable value fund in my 401k and that's about half of my fixed income right now. The rest is in T. Rowe Price New Income (intermediate term bonds) in my 401k.
4. I also have a single 10k I-bond that I kind of regret buying because I subsequently made the decision to put all of my fixed income in pretax. I might liquidate this after the lock up period ends and buy equity index ETFs with it, and buy more fixed income in pretax.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by madbrain » Tue Aug 01, 2017 8:46 pm

Yes and no. I'm still using 30% for safe bonds. However, I have played with term. For many years, I have used shorter-term bonds than I otherwise would have, due to the anticipation of rate rises. This means I have used intermediate term CA muni bonds instead of long-term, and stable value fund earning only about 1.3-.1.7% in my 401k, instead of more traditional total bond index fund. This was a mistake, and something I regret.

That said, now that interest rates really are finally starting to rise, I'm holding on to these shorter-term/lower-yielding bond investments. I figure it would take a few more rate hikes before I will consider switching part of them out for longer-term.
I'm however currently adding to total bond in my 401k for future contributions.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Random Walker » Tue Aug 01, 2017 9:00 pm

"Bond Bubble" has not exactly caused me to do this, but perhaps helped facilitate the change. As markets have done very well last few years, I've wanted to take risk off the table. I use municipal bonds in taxable account. Certainly I've increased my bond allocation some. But I've also created allocations to alternatives: QSPRX, QMHRX, SSRIX, LENDX, AVRPX. For me these are alternatives to municipals in my taxable account. These tax inefficient alternatives have higher after tax expected returns than municipal bonds. They have pre tax expected returns about same as equities. But they should be uncorrelated to both stocks and bonds. So by creating these positions compared to just adding more bonds, I'm increasing expected return, increasing risk (but very different uncorrelated risks), and should be increasing Sharpe Ratio / Portfolio Efficiency substantially.

Dave

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Re: Has the "bond bubble" caused you to change your allocation?

Post by jbolden1517 » Tue Aug 01, 2017 9:02 pm

whodidntante wrote:
jbolden1517 wrote: As an aside, I think you are being too bearish on debt levels in general. Yes the federal debt is bad. But
USA household debt is way down: https://fred.stlouisfed.org/series/HDTG ... categories
Interesting... especially since I have seen news about record levels of credit card debt, and news about auto loan defaults and general resistance to individuals taking on more auto debt. Is long-term debt like mortgages being replaced by shorter term debt like credit cards and auto loans?
Mostly debt is pretty gradually inching back up nothing exciting. Credit card debt isn't that high. It is setting new records as it crosses the levels from a decade ago but that would be expected:
Image
Moreover the proportion of Americans carrying large balances is steadily dropping. If you exclude households with negative net worth things look good. Banks are just getting more aggressive to making iffy loans again.

Autoloans are a totally different story: Image We have overcapacity in new cars. Car dealerships need to move more cars than people who can afford them can pay. The "cash for clunkers" clearing of the used market has run its course and leases are losing money on selling the cars after the residuals. So they are offering good loan terms and turning to subprime borrowers This is moving the cars but creating a lot of auto debt (and I suspect a lot of this ends up in at least partial default): Image

The other thing it is going to do is create a falloff in auto demand in the USA for years to come. This is a one time push.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by SimplicityNow » Wed Aug 02, 2017 6:54 am

I'm not smart enough to determine what changes might be better.

As a result I am maintaining my 60%/40% allocation with the 40% split pretty evenly between several stable value funds and Vanguard Total Bond Market Index.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Lieutenant.Columbo » Sat Aug 05, 2017 12:00 am

whodidntante wrote:I bought AQR Equity Market Neutral and AQR Long-Short Equity to gain alternative sources of return.
whodidntante,
If you also looked at AQR Style Premia Alternative and/or to AQR Managed Futures Strategy HV funds, do you remember why you picked the ones you did and not these two? Thanks.

EDIT: never mind; I found that less than a month ago
whodidntante wrote:I'm using AQR Long Short Equity which is quite a bizarre fund. It combines market neutral, tactical allocation, and MSCI World beta sources of return. Also AQR Market Neutral. My results are good so far. I probably wouldn't own these if treasuries were yielding 6%, similar to nedsaid's point.

I would like to purchase AQR Style Premia Alternative but it is closed. I'm also considering a managed futures investment but I'm lacking conviction on that. These "low volatility, everything's expensive, melt up" times have thwarted managed futures. For now I'm happy with what I have, considering that I do not pay advisor expenses to get it.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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whodidntante
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Re: Has the "bond bubble" caused you to change your allocation?

Post by whodidntante » Sat Aug 05, 2017 11:00 am

Lieutenant.Columbo wrote:
whodidntante wrote:I bought AQR Equity Market Neutral and AQR Long-Short Equity to gain alternative sources of return.
whodidntante,
If you also looked at AQR Style Premia Alternative and/or to AQR Managed Futures Strategy HV funds, do you remember why you picked the ones you did and not these two? Thanks.

EDIT: never mind; I found that less than a month ago
whodidntante wrote:I'm using AQR Long Short Equity which is quite a bizarre fund. It combines market neutral, tactical allocation, and MSCI World beta sources of return. Also AQR Market Neutral. My results are good so far. I probably wouldn't own these if treasuries were yielding 6%, similar to nedsaid's point.

I would like to purchase AQR Style Premia Alternative but it is closed. I'm also considering a managed futures investment but I'm lacking conviction on that. These "low volatility, everything's expensive, melt up" times have thwarted managed futures. For now I'm happy with what I have, considering that I do not pay advisor expenses to get it.
Yep, those are the reasons. I was a bit late to the party for AQR Style Premia. AQR's managed futures funds are well run but I still lack conviction on managed futures. And it's not something I want to own without conviction.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Gnirk » Sat Aug 05, 2017 11:05 am

No changes to allocations, staying the course with 35% stocks/60% Bonds, 5% cash which helps me sleep well at night in retirement.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by ParkersPaPa » Sat Aug 05, 2017 3:43 pm

remomnyc wrote:No, but sequence of return risk has made me increase my fixed income allocation and change part of my bond allocation to a CD ladder.
Ditto :beer

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Re: Has the "bond bubble" caused you to change your allocation?

Post by John151 » Sat Aug 05, 2017 3:57 pm

About half of my bond holdings are in Vanguard bond funds. Early this year, I shifted some of that into shorter-duration funds. My bond funds’ average duration is now about three years. It used to be about five years. The rest of my bond investments are in I Bonds and a stable value fund. New money is going into a Vanguard money market fund. I plan to keep adding to it until it makes up three or four percent of my investments. So I guess I’d say that I’m positioning myself for a rise in interest rates.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by DetroitRick » Sat Aug 05, 2017 4:14 pm

Just slightly, in 4 respects.
1)Overall, my bond allocation is around 2 to 3 percentage points lower right now than I would otherwise have chosen at this particular age, time and circumstance.
2)I've carved off a bit more allocation into CD's as their return has come up, versus specific short-term bond holdings (I had more defined maturity corporate etf's a few years ago).
3)I've slanted my core fixed income holdings more toward two active fund management teams that I respect, while holding indexed holdings constant.
4)About 3 years ago, I was considering a move into individual bond holdings instead of funds (as part of my general migration in retirement to heavier fixed income holdings). I planned, studied and then nixed the whole idea before execution. Based on portfolio size and market environment (be it bubble or not), I decided it was too much work for too little return.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by gasman » Sat Aug 05, 2017 4:24 pm

Slight tinkering. A little shorter duration as the yield curve as flattened. A little more in CDs as opposed to corporates as the corporate to treasury spread has narrowed. Nibbling at TIPs in the 7-10 year range whenever real yield gets above 0.5%.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by james22 » Sun Aug 06, 2017 4:00 am

Yes, using the 401k's Stable Value fund rather than TBM.
This whole episode is likely to end so badly that future children will learn about it in school and shake their heads in wonder at the rank stupidity of it all... Hussman

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Re: Has the "bond bubble" caused you to change your allocation?

Post by firedinky » Sun Aug 06, 2017 9:38 am

My asset allocation is strongly influenced by the current low interest rate high CAPE environment-

15% Alternatives (Lending Club and AlphaFlow real estate debt) returning 8%+
25% Guaranteed income fund in 401k at about 2% return
15% Bond funds (mix of SCHZ, SCHP, and BND)
45% Stocks (50/50 US and International with small cap value tilt)

Also leveraged local rental properties returning 15%+ on equity.

Plus a 26k non-cola pension and SS in 10 years at 70 that I consider as replacing another substantial allotment of bonds. The guaranteed income fund will be depleted over the next 10 years in equal increments roughly equivalent to expected Social Security income for my wife and me. I feel this is a very conservative portfolio that lets me sleep well.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by rj49 » Sun Aug 06, 2017 1:03 pm

Interesting perspective by Jason Zweig, that individual investors are actually increasing their bond allocation, because of retiree need for safe income, automatic rebalancing in TR funds, and other factors:
https://blogs.wsj.com/moneybeat/2017/08 ... this-time/

Personally, I don't want my fixed income to lose value, so I have all my TSP in the G fund, and my taxable fixed income is in p2p companies like Prosper, Lending Club, and StreetShares (the latter pays 5% on 1-year Veterans Bonds). So I'm getting 4-7% back on those investments, after inevitable defaults. The risks are regulatory, company (one or all might go out of business), and economic (a severe recession might result in higher defaults). I have a military pension and paid-off mortgage, so I'm willing and able to handle those risks.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Portfolio7 » Sun Aug 06, 2017 1:36 pm

Swenson pretty much had me convinced of the value of Intermediate Treasuries to keep the 'safe' money safe. I admit I was an easy sell, and maybe need to revisit. Anyways, after input from several knowledgeable bogleheads, and investigating my 401(k), it seemed to make sense to look at the Stable Value Fund available to me as well. The yield was a good half point higher than Int. Treasuries, so I switched 100% of FI to Stable Value. I have this half-formed thought that I will probably build a simple yield-based algorithm at some point to guide how much I place in either (and maybe TIPS, though I'm not sold on them.)

I'm not convinced that bonds are in a bubble. Like stocks, valuations reflect the very low rates of the moment, and it seems reasonable to believe that the 'natural' rate of interest is, in reality, quite low now. I also think that these conditions may remain for years, well over a decade, maybe even two. In that case, 'reacting' to these valuations would be an error. These thoughts play in my head as I try to assess if I'm unnecessarily giving up return for safety that I don't need, or vice versa, maybe am taking too much risk.
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Re: Has the "bond bubble" caused you to change your allocation?

Post by Dasnyc » Sun Aug 06, 2017 2:13 pm

oldcomputerguy wrote:What bond bubble?
+1

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Re: Has the "bond bubble" caused you to change your allocation?

Post by iamlucky13 » Mon Aug 07, 2017 3:45 am

Short answer: No

I've actually increased my bond holdings recently, but that's because I've been sitting on too much cash in my taxable account.

On the stock side, the counterpoint to low interest rates is high stock valuations. Neither looks great to me at the moment, but neither look terrible, and certainly not enough so to make me rethink my IPS.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by best2u » Mon Aug 07, 2017 5:39 am

Actually the stock market made me change my bond strategy. I road through the crash with a heavy stock allocation. The fact that I could have made more with a 60/40 portfolio during the decade that began in 2000 plus the volatility told me that I should not be so heavily invested in stocks. After I recovered my stock market losses I put together my bond market strategy. I decided since the average baby boomer was nearing retirement, demand for bonds could stay strong for several years. So I decided to move to a heavier bond commitment. I place 1/4 into individual municipal bonds paying upwards of 8%. I put 1/2 into safe, cannot lose 10 year ladder. Buy CDs and treasuries with these funds. Goal is to invest this at 3 % or better. Last 1/4 I let Vanguard's intermediate bond fund carry the load. This money could be used for rebalance purposes the next time we all lose our shirts in another stock market down draft. The bond market has been favorable for what I have been doing. If bond yields go negative, I will probably consider finding my nickel some other way.

Something for you 100% stock investors to chew on. Two individuals have $100,000. One is 100/0 the other 60/40. The market falls 50%. If the 60/40 investor rebalances back to his original stock market high he will then own 60,000 stocks and 10,000 bonds whereas the 100% stock owner only has 50,000 stocks.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by eRob » Mon Aug 07, 2017 7:00 am

best2u wrote:Something for you 100% stock investors to chew on. Two individuals have $100,000. One is 100/0 the other 60/40. The market falls 50%. If the 60/40 investor rebalances back to his original stock market high he will then own 60,000 stocks and 10,000 bonds whereas the 100% stock owner only has 50,000 stocks.
Correct me if I'm wrong but wouldn't this be a form of market timing? How would you know to let stocks drop to 50% before rebalancing from 40% bonds to around 14% bonds? If the market drops 40% do you rebalance and what to?

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telemark
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Re: Has the "bond bubble" caused you to change your allocation?

Post by telemark » Mon Aug 07, 2017 11:06 am

I did move about a third of my bond allocation to a stable value fund, but that was me trying to compensate for the other two thirds, which is in a managed fund (PICYX) that has a lot of BBB-rated bonds and mortgage-backed securities.

That's my story anyway, and I'm sticking to it :)

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Re: Has the "bond bubble" caused you to change your allocation?

Post by iamlucky13 » Mon Aug 07, 2017 12:43 pm

eRob wrote:
best2u wrote:Something for you 100% stock investors to chew on. Two individuals have $100,000. One is 100/0 the other 60/40. The market falls 50%. If the 60/40 investor rebalances back to his original stock market high he will then own 60,000 stocks and 10,000 bonds whereas the 100% stock owner only has 50,000 stocks.
Correct me if I'm wrong but wouldn't this be a form of market timing? How would you know to let stocks drop to 50% before rebalancing from 40% bonds to around 14% bonds? If the market drops 40% do you rebalance and what to?
Rebalancing according to a threshold determined ahead of time, back to your target allocation is not generally considered market timing.

The flip side here is that in the time leading up to the crash, the 100% stock investor was likely to be outpacing the 60/40 investor, so they wouldn't likely both have $100,000 if all else was equal. It does partly illustrate why it may be prudent to reduce stock allocations as retirement approaches, because then you're moving those past higher gains into an investment where they're less likely to lose as much value in a downturn.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by best2u » Mon Aug 07, 2017 12:49 pm

eRob wrote:
best2u wrote:Something for you 100% stock investors to chew on. Two individuals have $100,000. One is 100/0 the other 60/40. The market falls 50%. If the 60/40 investor rebalances back to his original stock market high he will then own 60,000 stocks and 10,000 bonds whereas the 100% stock owner only has 50,000 stocks.
Correct me if I'm wrong but wouldn't this be a form of market timing? How would you know to let stocks drop to 50% before rebalancing from 40% bonds to around 14% bonds? If the market drops 40% do you rebalance and what to?
Why is it market timing if someone's rebalance strategy is to always rebalance to the previous market high exposure that one had before a correction? My strategy is to buy stocks after they go on sale. I invest money in bonds for that purpose. My IPS does not state that I will maintain x dollars in bond investments. Only that I will maintain maximum dollars of stock market exposure in good markets and bad. I harvest one dollar of market gain for every two dollars that my stocks gain for the purpose of purchasing stocks when they are again on sale. The dollar that remains in the market and is not harvested is considered an increase in stock market exposure. I rebalance annually and in addition any time the market drops 15% from my high stock market exposure. It is possible that I will run out of available funds to buy stocks if the market behaves too badly. I will make money in a sideways stock market and any rising stock market. Falling markets always cost. Some people may call this market timing. I call this a rebalance strategy. What I am trying to do is to have some money available for the next time stocks again go on sale. If one digs into what Warren Buffet actually does over the years you will find that he always has some money available to buy when the market has a sale.

So in answer to your question if the stock market declines 40% I increase my stock market exposure by about 32.25%, providing I have enough money set aside in the bond market for this purpose. Robert Lichello devised some of these strategies, if you are interested.
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Re: Has the "bond bubble" caused you to change your allocation?

Post by craigers » Mon Aug 07, 2017 1:01 pm

No, I'm 47 and still 65/35.

The first bullet under the article title makes me ignore (or at least severely discount) all that follows:

"Inflation won’t stay at historically low levels, dooming bonds"

doomed!!

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Re: Has the "bond bubble" caused you to change your allocation?

Post by topper1296 » Mon Aug 07, 2017 1:05 pm

No, however I've shortened my duration.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by munemaker » Mon Aug 07, 2017 1:13 pm

topper1296 wrote:No, however I've shortened my duration.
Just an aside:

As of today, Morningstar shows:

Vanguard Total Bond Market Index Fund (VBTLX) has 6.14 year duration with AA credit quality.
Vanguard Intermediate Bond Market Index Fund (VBILX) has 6.50 year duration with A credit quality.

Intuitively, I would have expected the Total Bond Market fund to have a duration equal to or longer than the Intermediate Term Index fund, so I was a little surprised at this.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by rattlenap » Mon Aug 07, 2017 1:37 pm

stemikger wrote:When Warren Buffett started saying bonds were dangerous and he tells all his friends and family (many of which are of modest wealth) to just hold enough in cash and put the rest in an S&P low cost index fund, I briefly changed my AA. I was not able to hold on with such an aggressive AA, so I went back to 60/40.

When I think about asset allocation, I remind myself of Chance the Gardner and realize that every asset has their season. It helps me stay the course. 60/40 for life.
Same here! This is why I switch all of my portfolios to the Vanguard Balanced Index fund. I don't have a crystal ball and want to mitigate risk. The good, old fashioned 60/40 just seems to work.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Lieutenant.Columbo » Mon Aug 07, 2017 4:31 pm

best2u wrote:I will maintain maximum dollars of stock market exposure in good markets and bad. I harvest one dollar of market gain for every two dollars that my stocks gain for the purpose of purchasing stocks when they are again on sale. The dollar that remains in the market and is not harvested is considered an increase in stock market exposure. I rebalance annually and in addition any time the market drops 15% from my high stock market exposure. It is possible that I will run out of available funds to buy stocks if the market behaves too badly. I will make money in a sideways stock market and any rising stock market. Falling markets always cost. Some people may call this market timing. I call this a rebalance strategy. What I am trying to do is to have some money available for the next time stocks again go on sale. If one digs into what Warren Buffet actually does over the years you will find that he always has some money available to buy when the market has a sale.

So in answer to your question if the stock market declines 40% I increase my stock market exposure by about 32.25%, providing I have enough money set aside in the bond market for this purpose. Robert Lichello devised some of these strategies, if you are interested.
I'd like to understand how/why you do this. A few questions:
1. you don't seem to have a target bonds:stocks target constant ratio (or do you?), what ratio do you rebalance to when you do?
2. how often do you harvest $1 for every $2 gain?
3. harvesting isn't rebalancing, correct?
4. what math do you use when you say that if the market "declines 40% I increase my stock market exposure by about 32.25%"?
Thank you.
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

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Re: Has the "bond bubble" caused you to change your allocation?

Post by best2u » Mon Aug 07, 2017 6:12 pm

Lieutenant.Columbo wrote:
best2u wrote:I will maintain maximum dollars of stock market exposure in good markets and bad. I harvest one dollar of market gain for every two dollars that my stocks gain for the purpose of purchasing stocks when they are again on sale. The dollar that remains in the market and is not harvested is considered an increase in stock market exposure. I rebalance annually and in addition any time the market drops 15% from my high stock market exposure. It is possible that I will run out of available funds to buy stocks if the market behaves too badly. I will make money in a sideways stock market and any rising stock market. Falling markets always cost. Some people may call this market timing. I call this a rebalance strategy. What I am trying to do is to have some money available for the next time stocks again go on sale. If one digs into what Warren Buffet actually does over the years you will find that he always has some money available to buy when the market has a sale.

So in answer to your question if the stock market declines 40% I increase my stock market exposure by about 32.25%, providing I have enough money set aside in the bond market for this purpose. Robert Lichello devised some of these strategies, if you are interested.
I'd like to understand how/why you do this. A few questions:
1. you don't seem to have a target bonds:stocks target constant ratio (or do you?), what ratio do you rebalance to when you do?
2. how often do you harvest $1 for every $2 gain?
3. harvesting isn't rebalancing, correct?
4. what math do you use when you say that if the market "declines 40% I increase my stock market exposure by about 32.25%"?
Thank you.
1. No I do not have a target stocks bonds ratio. I have a desired stock market investment value.
2. I just take half of the gains on my annual rebalance date. The amount of money left in stocks becomes my preferred market value, when I am harvesting gains.
3. Harvesting could be rebalancing if there are gains. If the market declined during the year instead, I buy some stock. Buying stock increases my preferred market investment value dollar amount by the dollar amount of stock I purchased.
4. I bought 15% when the market declined 15%. Since that stock lost money when the market declined another 15% lower (30% lower overall), I buy 17.25% the second purchase to make up for the purchase of 15% losing money. I do not make any more buys until the market moves 45% lower. An alternative way to do it is just figure a straight dollar value decline and the same dollar purchase every time. Doing it the second way tends to move the stock purchases closer together as there is less overall market decline to trigger a buy of a constant dollar amount. Can do it either way.

Sorry if this is confusing the way I am explaining it.

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Lieutenant.Columbo » Mon Aug 07, 2017 6:21 pm

best2u wrote:
Lieutenant.Columbo wrote:
best2u wrote:I will maintain maximum dollars of stock market exposure in good markets and bad. I harvest one dollar of market gain for every two dollars that my stocks gain for the purpose of purchasing stocks when they are again on sale. The dollar that remains in the market and is not harvested is considered an increase in stock market exposure. I rebalance annually and in addition any time the market drops 15% from my high stock market exposure. It is possible that I will run out of available funds to buy stocks if the market behaves too badly. I will make money in a sideways stock market and any rising stock market. Falling markets always cost. Some people may call this market timing. I call this a rebalance strategy. What I am trying to do is to have some money available for the next time stocks again go on sale. If one digs into what Warren Buffet actually does over the years you will find that he always has some money available to buy when the market has a sale.

So in answer to your question if the stock market declines 40% I increase my stock market exposure by about 32.25%, providing I have enough money set aside in the bond market for this purpose. Robert Lichello devised some of these strategies, if you are interested.
I'd like to understand how/why you do this. A few questions:
1. you don't seem to have a target bonds:stocks target constant ratio (or do you?), what ratio do you rebalance to when you do?
2. how often do you harvest $1 for every $2 gain?
3. harvesting isn't rebalancing, correct?
4. what math do you use when you say that if the market "declines 40% I increase my stock market exposure by about 32.25%"?
Thank you.
1. No I do not have a target stocks bonds ratio. I have a desired stock market investment value.
2. I just take half of the gains on my annual rebalance date. The amount of money left in stocks becomes my preferred market value, when I am harvesting gains.
3. Harvesting could be rebalancing if there are gains. If the market declined during the year instead, I buy some stock. Buying stock increases my preferred market investment value dollar amount by the dollar amount of stock I purchased.
4. I bought 15% when the market declined 15%. Since that stock lost money when the market declined another 15% lower (30% lower overall), I buy 17.25% the second purchase to make up for the purchase of 15% losing money. I do not make any more buys until the market moves 45% lower. An alternative way to do it is just figure a straight dollar value decline and the same dollar purchase every time. Doing it the second way tends to move the stock purchases closer together as there is less overall market decline to trigger a buy of a constant dollar amount. Can do it either way.

Sorry if this is confusing the way I am explaining it.
thank for explaining; follow up questions:
1. is the 15% calculated compared to your "preferred market value" after your last harvest?
2. what do you see as downside/risk of your approach compared to more "conventional" BH approaches?
Thanks!
Lt. Columbo: Well, what do you know. Here I am talking with some of the smartest people in the world, and I didn't even notice!

best2u
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Re: Has the "bond bubble" caused you to change your allocation?

Post by best2u » Tue Aug 08, 2017 5:21 am

Lieutenant.Columbo wrote:
best2u wrote:
Lieutenant.Columbo wrote:
best2u wrote:I will maintain maximum dollars of stock market exposure in good markets and bad. I harvest one dollar of market gain for every two dollars that my stocks gain for the purpose of purchasing stocks when they are again on sale. The dollar that remains in the market and is not harvested is considered an increase in stock market exposure. I rebalance annually and in addition any time the market drops 15% from my high stock market exposure. It is possible that I will run out of available funds to buy stocks if the market behaves too badly. I will make money in a sideways stock market and any rising stock market. Falling markets always cost. Some people may call this market timing. I call this a rebalance strategy. What I am trying to do is to have some money available for the next time stocks again go on sale. If one digs into what Warren Buffet actually does over the years you will find that he always has some money available to buy when the market has a sale.

So in answer to your question if the stock market declines 40% I increase my stock market exposure by about 32.25%, providing I have enough money set aside in the bond market for this purpose. Robert Lichello devised some of these strategies, if you are interested.
I'd like to understand how/why you do this. A few questions:
1. you don't seem to have a target bonds:stocks target constant ratio (or do you?), what ratio do you rebalance to when you do?
2. how often do you harvest $1 for every $2 gain?
3. harvesting isn't rebalancing, correct?
4. what math do you use when you say that if the market "declines 40% I increase my stock market exposure by about 32.25%"?
Thank you.
1. No I do not have a target stocks bonds ratio. I have a desired stock market investment value.
2. I just take half of the gains on my annual rebalance date. The amount of money left in stocks becomes my preferred market value, when I am harvesting gains.
3. Harvesting could be rebalancing if there are gains. If the market declined during the year instead, I buy some stock. Buying stock increases my preferred market investment value dollar amount by the dollar amount of stock I purchased.
4. I bought 15% when the market declined 15%. Since that stock lost money when the market declined another 15% lower (30% lower overall), I buy 17.25% the second purchase to make up for the purchase of 15% losing money. I do not make any more buys until the market moves 45% lower. An alternative way to do it is just figure a straight dollar value decline and the same dollar purchase every time. Doing it the second way tends to move the stock purchases closer together as there is less overall market decline to trigger a buy of a constant dollar amount. Can do it either way.

Sorry if this is confusing the way I am explaining it.
thank for explaining; follow up questions:
1. is the 15% calculated compared to your "preferred market value" after your last harvest?
2. what do you see as downside/risk of your approach compared to more "conventional" BH approaches?
Thanks![/quote}

1. Yes
2. Like all less than 100% stock portfolios one will trail in profit wise in a great bull market. One risks running out of cash to make purchases in a depression type bear market unless there is a source of cash from outside sources. Here is a link that can give another take on this.
https://toughnickel.com/personal-financ ... oAIMSystem

Sorry to get off thread with this.
“There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest of them have to pee on the electric fence for themselves.” Will Rogers

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stemikger
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Re: Has the "bond bubble" caused you to change your allocation?

Post by stemikger » Wed Aug 09, 2017 3:07 pm

rattlenap wrote:
stemikger wrote:When Warren Buffett started saying bonds were dangerous and he tells all his friends and family (many of which are of modest wealth) to just hold enough in cash and put the rest in an S&P low cost index fund, I briefly changed my AA. I was not able to hold on with such an aggressive AA, so I went back to 60/40.

When I think about asset allocation, I remind myself of Chance the Gardner and realize that every asset has their season. It helps me stay the course. 60/40 for life.
Same here! This is why I switch all of my portfolios to the Vanguard Balanced Index fund. I don't have a crystal ball and want to mitigate risk. The good, old fashioned 60/40 just seems to work.
:sharebeer

Great minds think alike!

Jack also advises most to just invest in the balanced index fund and stop looking at your accounts. This is how he invests his Grandchildren's money. If it's good enough for them, it's good enough for me.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

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Re: Has the "bond bubble" caused you to change your allocation?

Post by Valuethinker » Thu Aug 10, 2017 2:41 pm

stemikger wrote:
rattlenap wrote:
stemikger wrote:When Warren Buffett started saying bonds were dangerous and he tells all his friends and family (many of which are of modest wealth) to just hold enough in cash and put the rest in an S&P low cost index fund, I briefly changed my AA. I was not able to hold on with such an aggressive AA, so I went back to 60/40.

When I think about asset allocation, I remind myself of Chance the Gardner and realize that every asset has their season. It helps me stay the course. 60/40 for life.
Same here! This is why I switch all of my portfolios to the Vanguard Balanced Index fund. I don't have a crystal ball and want to mitigate risk. The good, old fashioned 60/40 just seems to work.
:sharebeer

Great minds think alike!

Jack also advises most to just invest in the balanced index fund and stop looking at your accounts. This is how he invests his Grandchildren's money. If it's good enough for them, it's good enough for me.
There's a whole world of expected utility theory that says that "split the difference" is actually a good way to make important life decisions.

It's more important to not be 100% wrong, than to be 100% right. Especially with something as important as what money will you have in retirement.

I think geniuses are people who can make significant theoretical innovations, but relate them to the real world. I think Carl Sagan had that capability- an accomplished astronomer (I gather) as well as public scientist. Richard Feynman (Nobel Prize in physics) certainly did-- the glass cube in the glass of water, explaining the Challenger disaster.

Franco Modigliani (Nobel Prize in Economics) kept half his portfolio in fixed income and half in stocks. Saying that that way he was happy both in bull and bear markets (it also fitted what funds TIAA CREF offered in those days, a stock fund and the annuity).

rattlenap
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Re: Has the "bond bubble" caused you to change your allocation?

Post by rattlenap » Thu Aug 10, 2017 3:05 pm

Valuethinker wrote:
stemikger wrote:
rattlenap wrote:
stemikger wrote:When Warren Buffett started saying bonds were dangerous and he tells all his friends and family (many of which are of modest wealth) to just hold enough in cash and put the rest in an S&P low cost index fund, I briefly changed my AA. I was not able to hold on with such an aggressive AA, so I went back to 60/40.

When I think about asset allocation, I remind myself of Chance the Gardner and realize that every asset has their season. It helps me stay the course. 60/40 for life.
Same here! This is why I switch all of my portfolios to the Vanguard Balanced Index fund. I don't have a crystal ball and want to mitigate risk. The good, old fashioned 60/40 just seems to work.
:sharebeer

Great minds think alike!

Jack also advises most to just invest in the balanced index fund and stop looking at your accounts. This is how he invests his Grandchildren's money. If it's good enough for them, it's good enough for me.
There's a whole world of expected utility theory that says that "split the difference" is actually a good way to make important life decisions.

It's more important to not be 100% wrong, than to be 100% right. Especially with something as important as what money will you have in retirement.

I think geniuses are people who can make significant theoretical innovations, but relate them to the real world. I think Carl Sagan had that capability- an accomplished astronomer (I gather) as well as public scientist. Richard Feynman (Nobel Prize in physics) certainly did-- the glass cube in the glass of water, explaining the Challenger disaster.

Franco Modigliani (Nobel Prize in Economics) kept half his portfolio in fixed income and half in stocks. Saying that that way he was happy both in bull and bear markets (it also fitted what funds TIAA CREF offered in those days, a stock fund and the annuity).
60/40 vs 50/50? I don't think 10% will make all that much of difference.

ToastCrunchToast
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Re: Has the "bond bubble" caused you to change your allocation?

Post by ToastCrunchToast » Thu Aug 10, 2017 3:11 pm

Is there an asset class right now that someone, somewhere is not claiming to currently be in a bubble?

Besides, Greenspan should have zero or less credibility with anyone that has been following investing for 10 years or more.

This is Bogleheads. Choose your asset allocation, stay the course.

fsrph
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Re: Has the "bond bubble" caused you to change your allocation?

Post by fsrph » Thu Aug 10, 2017 3:30 pm

I moved about 50% of my bond allocation to CDs over several years. One requirement to change was the cd should pay 2.75 to 3%. I found this rate at Penfed, Valor, Northwest and NASA. So, my bond allocation changed but investments in fixed income remained about the same.

Francis
"Success is getting what you want. Happiness is wanting what you get." | Dale Carnegie

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rmelvey
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Re: Has the "bond bubble" caused you to change your allocation?

Post by rmelvey » Thu Aug 10, 2017 3:36 pm

I am 100% stocks right now. If 10 year tips were yielding 2% I would probably have some bonds in my allocation. Until then, I am going to stick with stocks because I have a 20+ year time horizon.

https://fred.stlouisfed.org/series/DFII10

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stemikger
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Re: Has the "bond bubble" caused you to change your allocation?

Post by stemikger » Fri Aug 11, 2017 8:01 am

Posted by Valuethinker
There's a whole world of expected utility theory that says that "split the difference" is actually a good way to make important life decisions.

It's more important to not be 100% wrong, than to be 100% right. Especially with something as important as what money will you have in retirement.

I think geniuses are people who can make significant theoretical innovations, but relate them to the real world. I think Carl Sagan had that capability- an accomplished astronomer (I gather) as well as public scientist. Richard Feynman (Nobel Prize in physics) certainly did-- the glass cube in the glass of water, explaining the Challenger disaster.

Franco Modigliani (Nobel Prize in Economics) kept half his portfolio in fixed income and half in stocks. Saying that that way he was happy both in bull and bear markets (it also fitted what funds TIAA CREF offered in those days, a stock fund and the annuity).
+1
Excellent and a very interesting way to look at it.
Choose Simplicity ~ Stay the Course!! ~ Press on Regardless!!!

hudson
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Re: Has the "bond bubble" caused you to change your allocation?

Post by hudson » Fri Aug 11, 2017 10:21 am

whodidntante wrote:https://www.bloomberg.com/news/articles ... nspan-says

TL;DR: Greenspan is probably being misunderstood that there is a bond bubble and that interest rates could rise quickly.

I'm well aware we have heard similar arguments before and that most of you haven't changed a thing with good results. And a proper Boglehead doesn't do tactical allocation, etc. But this thread is about the dark side, the seedy underbelly of Bogleheads who did change something and are willing to admit it or even defend the theoretical or practical merits of what they did. :twisted: How did you change your asset allocation? What, if anything, would cause you to close those positions and buy normal-ish bonds again?

The following questions are food for thought and do not need to be answered directly. Did you increase your allocation to a stable value fund, or invest in an equity market neutral fund, managed futures, reinsurance, or other alternative funds? Did you begin to favor direct CDs over bond funds, shorten your duration, or take out a low rate loan as an inflation hedge? Did you buy "bond proxies?" Did you change the mix of bonds that you hold to overweight corporates, high yield bonds, emerging market bonds, agency bonds, or treasuries?

To have a baseline let's assume a "normal" Boglehead holds a US intermediate term index like BND or AGG. I've seen that recommended often enough.
No change to my allocation which is intermediate. I ignore bond bubble talk.

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