This. I've been doing this for over 18 months now, a big way you appear to make money is by the way this thing swinging one way for one quarter, rebalancing in after 3 months, swinging the other way the next quarter, and whatever gains you got during the swing are "captured" during the rebalance. It's a bit hard to describe, but basically you can have a quarter where UPRO soars, you end up going from 50/50 to 75/25 UPRO/TMF, then you rebalance back to 50/50. The next quarter it goes the other way 25/75, but because the UPRO gains from the prior quarter were captured already, you lose some UPRO, but you gain huge on TMF with your old UPRO gains.BogleBobby wrote: ↑Tue Aug 04, 2020 8:09 pm Regarding the question "how much more return does TMF have with interest rates so low?", I'll point out a few things:
This was a concern when this thread first started and TMF has returned 64% over the last year.
Interest rates have been falling for a long time (hundreds of years if you go back far enough) and part of the conviction of this strategy is that they will continue to fall or stay low. If you think they will start going up significantly, this strategy isn't for you.
See an article here about the fall of interest rates over time: https://www.visualcapitalist.com/700-ye ... est-rates/
TMF still has plenty of return left because interest rates can still fall further. We still have positive interest rates on the 20-year and 30-year. Interest rates can go negative.
However, you don't necessarily need a big return from TMF for this strategy to succeed. Instead, you need it to continue to be negatively correlated with equities during times of crisis.
Interest rates being really low is a good thing for this strategy because long term bond funds are more sensitive to interest rate changes when interest rates are low due to bond convexity. You want TMF to be more volatile to complement your equity holdings. See the article here (which has been linked before in this discussion): https://portfoliocharts.com/2019/05/27/ ... convexity/
Even the big losses folks fear on UPRO, people need to realize that TMF will begin to rocket higher as it did in March, and the pain from UPRO diminishes over time as the subsequent big drops are on an ever shrinking proportion of your UPRO holdings, while the TMF gains are on an ever increasing proportion. In March I was just stunned at this effect, it blew my mind and was fun to watch. Secondly, TMF did not fall back as fast as UPRO began to recover, this gave time for the rebalance to kick in and capture the TMF gains, replenishing UPRO for the duration of its recovery. The confluence of TMF or UPRO momentum combined with rebalance events really matters with this strategy.
Honestly, watching my bond holdings (the thing I should be least worried about) was the most gut wrenching thing to watch in March. I had 7-8% get wiped out in maybe 2 weeks.... oh and then a rebalance band kick in forcing me to sell at lows to stick to my IPS (which I did). In your head, you are converting this to "years of interest after taxes", and at 2% yields it adds up quick. It made me want to puke in a garbage can.