Why not 100% PSLDX?

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InvestInPasta
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Re: Why not 100% PSLDX?

Post by InvestInPasta »

HEDGEFUNDIE wrote: Thu Mar 05, 2020 12:30 am 100% S&P 500
100% Long term bonds (corporate + treasuries, actively managed)
-100% Cash

https://www.portfoliovisualizer.com/bac ... ion4_2=100
Astounding. :beer
firebirdparts wrote: Thu Mar 05, 2020 11:08 am P.S. In the HF thread there was quite a bit of back-and-forth about simulating it over a longer time frame. My personal lazy favorite is:

100% VWESX
100% VFINX
-100% CashX

This will take you all the way back to 1985 which is as far as you can go with PV built-in data. You'll agree this seems dull.

If it helps, it was pointed out also that PSLDX is also:
35% UPRO
20% TMF
45% VCLT.

You might ask yourself whether you'd use this as your entire portfolio, but obviously the counterparty risks are very different. Statistics might be the same, though.
Impressive :shock:

So where's the trick?
Have we just found the golden goose?! :wink: :moneybag
When I study English I am lazier than my portfolio. Feel free to fix my english and investing mistakes.
Lee_WSP
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Re: Why not 100% PSLDX?

Post by Lee_WSP »

jibantik wrote: Sat Jul 11, 2020 7:48 am
kevinf wrote: Fri Jul 10, 2020 10:14 pm If you are holding a mortgage while having investments, you are leveraged. You are betting that you will make more money by investing and not paying off the mortgage (than the interest of the mortgage will cost you.)

Roughly equivalent to taking out a 3% loan to invest into the market, or whatever your mortgage rate is.

The costs of the leverage in PSLDX is less than you could get a mortgage for. So PSLDX is cheaper leverage than a mortgage.
Two words: volatility decay.
Do your research before posting, please.

This isn't a daily reset ETF, nor does it have any more leverage on stocks than VFINX. The only decay it can experience is rebalance decay.
jibantik
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Re: Why not 100% PSLDX?

Post by jibantik »

Just want people to be clear, leveraged ETFs are not
Lee_WSP wrote: Sat Jul 11, 2020 9:53 am
jibantik wrote: Sat Jul 11, 2020 7:48 am
kevinf wrote: Fri Jul 10, 2020 10:14 pm If you are holding a mortgage while having investments, you are leveraged. You are betting that you will make more money by investing and not paying off the mortgage (than the interest of the mortgage will cost you.)

Roughly equivalent to taking out a 3% loan to invest into the market, or whatever your mortgage rate is.

The costs of the leverage in PSLDX is less than you could get a mortgage for. So PSLDX is cheaper leverage than a mortgage.
Two words: volatility decay.
Do your research before posting, please.

This isn't a daily reset ETF, nor does it have any more leverage on stocks than VFINX. The only decay it can experience is rebalance decay.
Just want people to be understand leveraged ETFs are not some magic fund that is going to give you 2X S&P, nor is it equivalent to taking out a 3% loan to invest in the market.
Lee_WSP
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Re: Why not 100% PSLDX?

Post by Lee_WSP »

jibantik wrote: Sat Jul 11, 2020 11:56 am Just want people to be clear, leveraged ETFs are not
Lee_WSP wrote: Sat Jul 11, 2020 9:53 am
jibantik wrote: Sat Jul 11, 2020 7:48 am
kevinf wrote: Fri Jul 10, 2020 10:14 pm If you are holding a mortgage while having investments, you are leveraged. You are betting that you will make more money by investing and not paying off the mortgage (than the interest of the mortgage will cost you.)

Roughly equivalent to taking out a 3% loan to invest into the market, or whatever your mortgage rate is.

The costs of the leverage in PSLDX is less than you could get a mortgage for. So PSLDX is cheaper leverage than a mortgage.
Two words: volatility decay.
Do your research before posting, please.

This isn't a daily reset ETF, nor does it have any more leverage on stocks than VFINX. The only decay it can experience is rebalance decay.
Just want people to be understand leveraged ETFs are not some magic fund that is going to give you 2X S&P, nor is it equivalent to taking out a 3% loan to invest in the market.
This fund doesn't even AIM to give 2x the S&P.... It's 100% stocks & 100% bonds.

A 3% loan needs to be repaid with monthly payments. Every discussion about borrowing money via some credit card or mortgage hardly ever goes into the details about how you either need to have the income to pay down those monthly's or you need to withdraw from the investment.
ChrisBenn
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Re: Why not 100% PSLDX?

Post by ChrisBenn »

jibantik wrote: Sat Jul 11, 2020 11:56 am
(...)

Just want people to be understand leveraged ETFs are not some magic fund that is going to give you 2X S&P, nor is it equivalent to taking out a 3% loan to invest in the market.
It's definitely not a magic fund, and there are real risks/tradeoffs with it, but it actually is very similar to taking out a loan -- specifically a non-callable 1% loan for ~150% of your principal and investing it in a 40/60 (as of now, or last quarterly statement) portfolio.
RocketShipTech
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Re: Why not 100% PSLDX?

Post by RocketShipTech »

Here is a random compare of PSLDX vs QQQ

https://www.portfoliovisualizer.com/fun ... mark=PSLDX

Or PSLDX vs FSCSX (Fidelity Software & IT Services Fund)

https://www.portfoliovisualizer.com/fun ... mark=PSLDX

Very similar performance! Now I’m thinking of PSLDX as a more diversified tech fund with similar outperformance
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

InvestInPasta wrote: Sat Jul 11, 2020 9:28 am
Impressive :shock:

So where's the trick?
Have we just found the golden goose?! :wink: :moneybag
It really is pretty dull, as I said above. if you have a raging bull market in both stocks and bonds, then naturally, a leveraged fund of either one is going to look nice. A balanced leveraged fund of both is going to look nice. And it has looked very nice.
A fool and your money are soon partners
Lee_WSP
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Re: Why not 100% PSLDX?

Post by Lee_WSP »

During the rising rate years, a PSLDX simulation did worse, slightly better, or about the same depending on what you use as the simulated constituents and costs.
Semantics
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Re: Why not 100% PSLDX?

Post by Semantics »

jibantik wrote: Sat Jul 11, 2020 7:48 am
kevinf wrote: Fri Jul 10, 2020 10:14 pm If you are holding a mortgage while having investments, you are leveraged. You are betting that you will make more money by investing and not paying off the mortgage (than the interest of the mortgage will cost you.)

Roughly equivalent to taking out a 3% loan to invest into the market, or whatever your mortgage rate is.

The costs of the leverage in PSLDX is less than you could get a mortgage for. So PSLDX is cheaper leverage than a mortgage.
Two words: volatility decay.
"Volatility decay" is a concept that is often taken out of context. It's just how the basic math of how compounding works when you reset leverage. Technically you can experience volatility decay with a mortgage too if you ever reset your leverage, just on a much coarser schedule. The regular leverage resets PSLDX does protect you from being over-leveraged when the underlying assets lose value, and from being under-leveraged when they gain value. That boosts returns in the long run; it boggles my mind that people view volatility decay as a purely negative property.

Think about what would happen if you never reset leverage when the underlying goes down in value, only when it's neutral or positive, thereby eliminating volatility decay (this is what typically happens with mortgages and home equity loans). You'd get larger returns, but you'd also be overleveraged on the downside, increasing your risk. So volatility decay is not uncompensated. Therefore it's not a cost, it's a mathematical corollary of maintaining constant risk.
Last edited by Semantics on Sat Jul 11, 2020 10:43 pm, edited 1 time in total.
MA405
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Re: Why not 100% PSLDX?

Post by MA405 »

Would someone please either confirm or correct my understanding of this fund:

- if all this borrowing/buying/selling and other activities on the bond side of the fund result in just breaking even, the investor is GUARANTEED the return of S&P500 (minus ER);
- if they manage to make a profit, say 3%, you would make whatever S&P500 returns + 3%; opposite if the managers lose money on the bond side.

Does that sound about right? Or is that oversimplification or misunderstanding?
RocketShipTech
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Re: Why not 100% PSLDX?

Post by RocketShipTech »

MA405 wrote: Sat Jul 11, 2020 10:25 pm Would someone please either confirm or correct my understanding of this fund:

- if all this borrowing/buying/selling and other activities on the bond side of the fund result in just breaking even, the investor is GUARANTEED the return of S&P500 (minus ER);
- if they manage to make a profit, say 3%, you would make whatever S&P500 returns + 3%; opposite if the managers lose money on the bond side.

Does that sound about right? Or is that oversimplification or misunderstanding?
Yes but there is a third driver of return - the rebalancing bonus:

Stocks fall, bonds stay flat or rise, some of the bonds are sold and proceeds rolled into stocks at a lower price, stocks rise again. S&P 500 is outpaced.
aqan
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Re: Why not 100% PSLDX?

Post by aqan »

Looks interesting I think i will buy some soon. BTW I didn’t realize that schwab still charges $50 to buy mutual funds. Are there any cheaper options? I’d hate to pay $50 for every time when I’m Making small purchases.
kevinf
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Re: Why not 100% PSLDX?

Post by kevinf »

For those of us looking for a better place to buy into PSLDX yearly, it seems like FirsTrade and E*Trade both offer no minimum balance requirements and ~$20 purchase fees for this fund.

Vanguard had a $25,000 minimum and a $50 purchase fee. (edited, see below)

edit: I rechecked Vanguard, and it looks like they've lowered their requirements to a $20 purchase fee (with $25,000 minimum).
Last edited by kevinf on Sun Jul 12, 2020 5:02 pm, edited 1 time in total.
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firebirdparts
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Re: Why not 100% PSLDX?

Post by firebirdparts »

MA405 wrote: Sat Jul 11, 2020 10:25 pm Would someone please either confirm or correct my understanding of this fund:

- if all this borrowing/buying/selling and other activities on the bond side of the fund result in just breaking even, the investor is GUARANTEED the return of S&P500 (minus ER);
- if they manage to make a profit, say 3%, you would make whatever S&P500 returns + 3%; opposite if the managers lose money on the bond side.

Does that sound about right? Or is that oversimplification or misunderstanding?
Look at the benchmark they use.
A fool and your money are soon partners
aqan
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Re: Why not 100% PSLDX?

Post by aqan »

kevinf wrote: Sun Jul 12, 2020 1:49 am For those of us looking for a better place to buy into PSLDX yearly, it seems like FirsTrade and E*Trade both offer no minimum balance requirements and ~$20 purchase fees for this fund.

Vanguard had a $25,000 minimum and a $50 purchase fee. (edited, see below)

edit: I rechecked Vanguard, and it looks like they've lowered their requirements to a $20 purchase fee.
Thanks for sharing.
invest2bfree
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Re: Why not 100% PSLDX?

Post by invest2bfree »

If we have a stagflation or if the we go on sideways market both in bonds and stocks then this will not do good. If your long the index atleast you wont lose money, with this the high fees will kill you.
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Ramjet
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Re: Why not 100% PSLDX?

Post by Ramjet »

invest2bfree wrote: Sun Jul 12, 2020 7:19 am If we have a stagflation or if the we go on sideways market both in bonds and stocks then this will not do good. If your long the index atleast you wont lose money, with this the high fees will kill you.
One of the Feds mandates is targeted inflation. In the 1970's, when we saw stagflation, the Fed did not have this mandate. I'm not saying it isn't possible, just that maybe it is less of a worry
InvestInPasta
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Re: Why not 100% PSLDX?

Post by InvestInPasta »

firebirdparts wrote: Thu Mar 05, 2020 11:08 am My personal lazy favorite is:

100% VWESX
100% VFINX
-100% CashX

This will take you all the way back to 1985 which is as far as you can go with PV built-in data.
It's a pity portfoliovisualizer does not seem to work with negative weights when using the Asset Class allocation tool.
I wish I could see the performance from 1972 to 1982, 10 years during which both Stocks and Treasuries did not do well inflation adjusted.

Image
Last edited by InvestInPasta on Sun Jul 12, 2020 5:48 pm, edited 1 time in total.
When I study English I am lazier than my portfolio. Feel free to fix my english and investing mistakes.
isubrama
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Re: Why not 100% PSLDX?

Post by isubrama »

aqan wrote: Sun Jul 12, 2020 6:47 am
kevinf wrote: Sun Jul 12, 2020 1:49 am For those of us looking for a better place to buy into PSLDX yearly, it seems like FirsTrade and E*Trade both offer no minimum balance requirements and ~$20 purchase fees for this fund.

Vanguard had a $25,000 minimum and a $50 purchase fee. (edited, see below)

edit: I rechecked Vanguard, and it looks like they've lowered their requirements to a $20 purchase fee.
Thanks for sharing.
Ally charges $10 and I believe FirstTrade doesn't charge at all.
Veritas2
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Re: Why not 100% PSLDX?

Post by Veritas2 »

In lieu of opening up yet another brokerage account, I’m going to do 50/50 SSO/UBT with rebalance via contribution every 2 weeks. Of course you lose the “actively managed” treasuries part but a monthly rebalance matches almost perfectly with PSLDX so I’d rather just go with the etf option to avoid keeping track of another account.
aqan
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Re: Why not 100% PSLDX?

Post by aqan »

Veritas2 wrote: Sun Jul 12, 2020 1:37 pm In lieu of opening up yet another brokerage account, I’m going to do 50/50 SSO/UBT with rebalance via contribution every 2 weeks. Of course you lose the “actively managed” treasuries part but a monthly rebalance matches almost perfectly with PSLDX so I’d rather just go with the etf option to avoid keeping track of another account.
Beware of the decay on SSO. If you’ve planning to hold this for a long term, you won’t get the same performance as PSLDX.
Semantics
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Re: Why not 100% PSLDX?

Post by Semantics »

aqan wrote: Sun Jul 12, 2020 2:33 pm
Veritas2 wrote: Sun Jul 12, 2020 1:37 pm In lieu of opening up yet another brokerage account, I’m going to do 50/50 SSO/UBT with rebalance via contribution every 2 weeks. Of course you lose the “actively managed” treasuries part but a monthly rebalance matches almost perfectly with PSLDX so I’d rather just go with the etf option to avoid keeping track of another account.
Beware of the decay on SSO. If you’ve planning to hold this for a long term, you won’t get the same performance as PSLDX.
What decay?

https://www.portfoliovisualizer.com/bac ... ion3_2=100
aqan
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Re: Why not 100% PSLDX?

Post by aqan »

Semantics wrote: Sun Jul 12, 2020 2:37 pm
aqan wrote: Sun Jul 12, 2020 2:33 pm
Veritas2 wrote: Sun Jul 12, 2020 1:37 pm In lieu of opening up yet another brokerage account, I’m going to do 50/50 SSO/UBT with rebalance via contribution every 2 weeks. Of course you lose the “actively managed” treasuries part but a monthly rebalance matches almost perfectly with PSLDX so I’d rather just go with the etf option to avoid keeping track of another account.
Beware of the decay on SSO. If you’ve planning to hold this for a long term, you won’t get the same performance as PSLDX.
What decay?

https://www.portfoliovisualizer.com/bac ... ion3_2=100
How do you account for the big differences on the yearly performance e.g. 2010 20% vs 35%.
Moreover the comparison only covers 2010-2020... mostly the bull years.
guyinlaw
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Re: Why not 100% PSLDX?

Post by guyinlaw »

aqan wrote: Mon Jul 13, 2020 6:00 am
Semantics wrote: Sun Jul 12, 2020 2:37 pm
aqan wrote: Sun Jul 12, 2020 2:33 pm
Veritas2 wrote: Sun Jul 12, 2020 1:37 pm In lieu of opening up yet another brokerage account, I’m going to do 50/50 SSO/UBT with rebalance via contribution every 2 weeks. Of course you lose the “actively managed” treasuries part but a monthly rebalance matches almost perfectly with PSLDX so I’d rather just go with the etf option to avoid keeping track of another account.
Beware of the decay on SSO. If you’ve planning to hold this for a long term, you won’t get the same performance as PSLDX.
What decay?

https://www.portfoliovisualizer.com/bac ... ion3_2=100
How do you account for the big differences on the yearly performance e.g. 2010 20% vs 35%.
Moreover the comparison only covers 2010-2020... mostly the bull years.
Here is starting in 2007. SSO/EDV

CAGR 12.5% vs 15.45% for PSLDX.

https://www.portfoliovisualizer.com/bac ... on3_2=100
Time is your friend; impulse is your enemy. - John C. Bogle
rgs92
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Re: Why not 100% PSLDX?

Post by rgs92 »

This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
RocketShipTech
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Re: Why not 100% PSLDX?

Post by RocketShipTech »

rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did
get_g0ing
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Re: Why not 100% PSLDX?

Post by get_g0ing »

Hey guys,

I'm wondering if we can have some comments on how PSLDX compares to the Excellent Adventure (UPRO/TMF).
What's a decent thought process to think about these two strategies?

Thanks.
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Ramjet
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Re: Why not 100% PSLDX?

Post by Ramjet »

RocketShipTech wrote: Mon Jul 13, 2020 8:55 am
rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did
Plus bonds don't have to fall further for this fund to outperform
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jason2459
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Re: Why not 100% PSLDX?

Post by jason2459 »

RocketShipTech wrote: Mon Jul 13, 2020 8:55 am
rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did


Doesn't PSLDX leverage just the bond side? Doesn't that amplify the long term bond risk which already has a lot of inflation and rate risks? Aren't leveraged funds meant to be market timing instruments? I'm genuinely curious.
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
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Ramjet
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Re: Why not 100% PSLDX?

Post by Ramjet »

jason2459 wrote: Mon Jul 13, 2020 8:58 am
RocketShipTech wrote: Mon Jul 13, 2020 8:55 am
rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did


Doesn't PSLDX leverage just the bond side? Doesn't that amplify the long term bond risk which already has a lot of inflation and rate risks? Aren't leveraged funds meant to be market timing instruments? I'm genuinely curious.
Already answered within thread a few times. I think bond duration is 15 years or so after leverage. This is not a market timing strategy, research PIMCO's StocksPlus
RocketShipTech
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Re: Why not 100% PSLDX?

Post by RocketShipTech »

jason2459 wrote: Mon Jul 13, 2020 8:58 am
RocketShipTech wrote: Mon Jul 13, 2020 8:55 am
rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did


Doesn't PSLDX leverage just the bond side? Doesn't that amplify the long term bond risk which already has a lot of inflation and rate risks? Aren't leveraged funds meant to be market timing instruments? I'm genuinely curious.
If you are interested in the theory behind the strategy I would recommend this paper by AQR

https://images.aqr.com/-/media/AQR/Docu ... Parity.pdf
moptop
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Re: Why not 100% PSLDX?

Post by moptop »

get_g0ing wrote: Mon Jul 13, 2020 8:57 am Hey guys,

I'm wondering if we can have some comments on how PSLDX compares to the Excellent Adventure (UPRO/TMF).
What's a decent thought process to think about these two strategies?

Thanks.
PSLDX is more conservative. Hedgefundie himself uses PSLDX in his regular portfolio, as do I. We consider it our slice of US large cap (but with a little extra juice). The Excellent Adventure is a risky side bet that is kept separate from one's main portfolio (I'm in the adventure too).
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vineviz
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Re: Why not 100% PSLDX?

Post by vineviz »

RocketShipTech wrote: Mon Jul 13, 2020 8:55 am

Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did
Bingo. 👏🏽
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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vineviz
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Re: Why not 100% PSLDX?

Post by vineviz »

Ramjet wrote: Mon Jul 13, 2020 8:58 am

Plus bonds don't have to fall further for this fund to outperform
Outperform what?

If the expected net return of the leveraged bonds is greater than the expense ratio of the fund, the investor will achieve their objective.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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jason2459
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Re: Why not 100% PSLDX?

Post by jason2459 »

RocketShipTech wrote: Mon Jul 13, 2020 9:10 am
jason2459 wrote: Mon Jul 13, 2020 8:58 am
RocketShipTech wrote: Mon Jul 13, 2020 8:55 am
rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did


Doesn't PSLDX leverage just the bond side? Doesn't that amplify the long term bond risk which already has a lot of inflation and rate risks? Aren't leveraged funds meant to be market timing instruments? I'm genuinely curious.
If you are interested in the theory behind the strategy I would recommend this paper by AQR

https://images.aqr.com/-/media/AQR/Docu ... Parity.pdf
Thank you. Reading through it now.
"In the short run, the stock market is a voting machine; in the long run, it is a weighing machine" ~Benjamin Graham
rgs92
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Re: Why not 100% PSLDX?

Post by rgs92 »

OK, thanks for that, point taken. Yes, my saying that long term bonds are peaking is indeed market timing, so I was wrong to say that without confessing it.
So I guess the question is, what is a long-term bond ? 10+ years. I actually don't know.
Also, is the underlying point to this strategy to maybe avoid credit risk as a more important factor than interest rate risk?

It is true that there is a strange phenomenon of credit risk becoming a much more significant risk as happened last March when even BND (Vanguard total bond market ETF) took a bizarre short term dip. (And a similar thing happened with non-treasury bonds in the financial crisis.)

So food for thought here.

I had always thought of long term bonds (even treasuries) as a high-risk investment unless you were just holding them to maturity and using them for income. This was a new way of thinking that surprised me. (Well, at least I had never seen it as a mainstream strategy.) But live and learn I guess.

Thank you.
Last edited by rgs92 on Mon Jul 13, 2020 9:26 am, edited 2 times in total.
moptop
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Re: Why not 100% PSLDX?

Post by moptop »

vineviz wrote: Mon Jul 13, 2020 9:19 am
Ramjet wrote: Mon Jul 13, 2020 8:58 am

Plus bonds don't have to fall further for this fund to outperform
Outperform what?

If the expected net return of the leveraged bonds is greater than the expense ratio of the fund, the investor will achieve their objective.
Vineviz,

I'm not sure if you posted this farther back in the thread, but do you hold any of this fund? What are your thoughts about for someone in the accumulation stage?
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vineviz
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Re: Why not 100% PSLDX?

Post by vineviz »

moptop wrote: Mon Jul 13, 2020 9:24 am
vineviz wrote: Mon Jul 13, 2020 9:19 am
Ramjet wrote: Mon Jul 13, 2020 8:58 am

Plus bonds don't have to fall further for this fund to outperform
Outperform what?

If the expected net return of the leveraged bonds is greater than the expense ratio of the fund, the investor will achieve their objective.
Vineviz,

I'm not sure if you posted this farther back in the thread, but do you hold any of this fund? What are your thoughts about for someone in the accumulation stage?
I don’t own any. Partly because I can get my desired stock and bond allocations without needing leverage, and partly because I have an irrational bias against funds with an expense ratio this high.

But for a young investor, coupled with second fund for international diversification, I think it’s a reasonable option.
Last edited by vineviz on Mon Jul 13, 2020 10:31 am, edited 1 time in total.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Ramjet
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Re: Why not 100% PSLDX?

Post by Ramjet »

vineviz wrote: Mon Jul 13, 2020 9:19 am
Ramjet wrote: Mon Jul 13, 2020 8:58 am

Plus bonds don't have to fall further for this fund to outperform
Outperform what?

If the expected net return of the leveraged bonds is greater than the expense ratio of the fund, the investor will achieve their objective.
S&P 500 or TSM for me personally
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vineviz
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Re: Why not 100% PSLDX?

Post by vineviz »

Ramjet wrote: Mon Jul 13, 2020 10:03 am
vineviz wrote: Mon Jul 13, 2020 9:19 am
Ramjet wrote: Mon Jul 13, 2020 8:58 am

Plus bonds don't have to fall further for this fund to outperform
Outperform what?

If the expected net return of the leveraged bonds is greater than the expense ratio of the fund, the investor will achieve their objective.
S&P 500 or TSM for me personally
Over any holding period for which 100% stocks would be appropriate, you can certainly expect PSLDX to outperform the S&P 500.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
moptop
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Re: Why not 100% PSLDX?

Post by moptop »

vineviz wrote: Mon Jul 13, 2020 10:30 am
Ramjet wrote: Mon Jul 13, 2020 10:03 am
vineviz wrote: Mon Jul 13, 2020 9:19 am
Ramjet wrote: Mon Jul 13, 2020 8:58 am

Plus bonds don't have to fall further for this fund to outperform
Outperform what?

If the expected net return of the leveraged bonds is greater than the expense ratio of the fund, the investor will achieve their objective.
S&P 500 or TSM for me personally
Over any holding period for which 100% stocks would be appropriate, you can certainly expect PSLDX to outperform the S&P 500.
Vine, what do you see as the major risks in holding PSLDX comparted to sp500 or tsm?
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randyharris
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Re: Why not 100% PSLDX?

Post by randyharris »

Ramjet wrote: Mon Jul 13, 2020 8:58 am
RocketShipTech wrote: Mon Jul 13, 2020 8:55 am
rgs92 wrote: Mon Jul 13, 2020 8:52 am This seems to depend heavily on long term bonds. Aren't these bonds at an all time high with little conceivable upside? This looks like an extreme version of bond market timing.

And I thought that a portfolio's purpose was (partly) to keep up with inflation.

Since high inflation leads to high interest rates which would cause big drops in long term bonds, does a heavy exposure to long term bonds make any sense at all (even in a normal interest rate environment)?
Actually, market timing would be the opposite: claiming that long bonds are a bad investment because they are “at an all time high with little conceivable upside”

Basically what you just did
Plus bonds don't have to fall further for this fund to outperform
Give this a read, it is worth your time.

https://portfoliocharts.com/2019/05/27/ ... convexity/
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vineviz
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Re: Why not 100% PSLDX?

Post by vineviz »

moptop wrote: Mon Jul 13, 2020 10:34 am
Vine, what do you see as the major risks in holding PSLDX comparted to sp500 or tsm?
It seems to me that the biggest danger is that the real yield curve turns flat or inverts for extended periods of time as we saw in the late 1960s and 1970s. In that unlikely scenario PSLDX would probably underperform the S&P 500 long enough to shake investors out (or cause the fund to fold/change strategy) before the fund could recover.

For this reason I’d be reluctant to recommend 100% PSLDX for a late stage accumulator or any decumulator. But for someone with significant human capital my concerns aren’t very strong.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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Re: Why not 100% PSLDX?

Post by bogledogle87 »

Obviously this thread has become quite lengthy, with plenty of great discussion and differing opinions around this risk parity approach. For the novice index investor, would someone like to TLDR the following points as concisely as possible:

- Why has this worked so well over the past 10 years?
- Seems to good to be true - we know there is no free lunch. What is the catch?
- What factors could cause this approach to under-perform an unleveraged index over the next 10 years?
VTWAX and chill
moptop
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Re: Why not 100% PSLDX?

Post by moptop »

bogledogle87 wrote: Mon Jul 13, 2020 12:47 pm Obviously this thread has become quite lengthy, with plenty of great discussion and differing opinions around this risk parity approach. For the novice index investor, would someone like to TLDR the following points as concisely as possible:

- Why has this worked so well over the past 10 years?
- Seems to good to be true - we know there is no free lunch. What is the catch?
- What factors could cause this approach to under-perform an unleveraged index over the next 10 years?
Most of your questions were answered by vineviz the post list prior to yours.
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UpsetRaptor
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Re: Why not 100% PSLDX?

Post by UpsetRaptor »

bogledogle87 wrote: Mon Jul 13, 2020 12:47 pm Obviously this thread has become quite lengthy, with plenty of great discussion and differing opinions around this risk parity approach. For the novice index investor, would someone like to TLDR the following points as concisely as possible:

- Why has this worked so well over the past 10 years?
- Seems to good to be true - we know there is no free lunch. What is the catch?
- What factors could cause this approach to under-perform an unleveraged index over the next 10 years?
The last 10 years has seen a great bull market in both equities and bonds, which is a perfect storm for PSLDX. You really could just think of this as a roughly 100/100 portfolio, with a fee for some leverage to get there. In a scenario where both equities and bonds were to drop, e.g. the 1970s, this fund will probably drop roughly around twice as much as a regular 50/50 portfolio would.

One catch (for some) would be no international, and another catch is the high distribution payouts make it not viable in a taxable account.
get_g0ing
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Re: Why not 100% PSLDX?

Post by get_g0ing »

jibantik wrote: Thu Jul 09, 2020 11:12 am ...
A fee that cuts away over 30% of your lifetime earnings is a HIGH fee. There are plenty of mutual funds with lower fees, for instance, VTWAX at 0.10%.
I was going through some of the discussion.
Wondering how the the 30% is calculated? Is there an online calculator that can show this? I find it interesting.

Thanks.
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Re: Why not 100% PSLDX?

Post by jibantik »

get_g0ing wrote: Tue Jul 14, 2020 1:48 pm
jibantik wrote: Thu Jul 09, 2020 11:12 am ...
A fee that cuts away over 30% of your lifetime earnings is a HIGH fee. There are plenty of mutual funds with lower fees, for instance, VTWAX at 0.10%.
I was going through some of the discussion.
Wondering how the the 30% is calculated? Is there an online calculator that can show this? I find it interesting.

Thanks.
From the man himself: https://www.youtube.com/watch?v=KuZvu_h3x1A

Also here is a quick chart that makes it easy to see the TYRANNY of fees. You may find the discussion in the below linked thread useful:

Image

(taken from here)
kevinf
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Re: Why not 100% PSLDX?

Post by kevinf »

get_g0ing wrote: Tue Jul 14, 2020 1:48 pm
jibantik wrote: Thu Jul 09, 2020 11:12 am ...
A fee that cuts away over 30% of your lifetime earnings is a HIGH fee. There are plenty of mutual funds with lower fees, for instance, VTWAX at 0.10%.
I was going through some of the discussion.
Wondering how the the 30% is calculated? Is there an online calculator that can show this? I find it interesting.

Thanks.
If we hop into Portfolio Visualizer and look at the results of PSLDX vs VTSAX to date...

$61,300 - $27,600 = $33,700 gain with PSLDX.

You do PAY more to the fund manager, but in all likelyhood... you also make more. Penny wise, pound foolish to worry about the expense ratio given the expectations. Remember the old saw about needing to spend money to make money?
Last edited by kevinf on Tue Jul 14, 2020 2:21 pm, edited 1 time in total.
RocketShipTech
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Re: Why not 100% PSLDX?

Post by RocketShipTech »

jibantik wrote: Tue Jul 14, 2020 2:14 pm
get_g0ing wrote: Tue Jul 14, 2020 1:48 pm
jibantik wrote: Thu Jul 09, 2020 11:12 am ...
A fee that cuts away over 30% of your lifetime earnings is a HIGH fee. There are plenty of mutual funds with lower fees, for instance, VTWAX at 0.10%.
I was going through some of the discussion.
Wondering how the the 30% is calculated? Is there an online calculator that can show this? I find it interesting.

Thanks.
From the man himself: https://www.youtube.com/watch?v=K4lwJ5aQGlI

Also here is a quick chart that makes it easy to see the TYRANNY of fees. You may find the discussion in the below linked thread useful:

Image

(taken from here)
This is nonsense.

The lifetime return on PSLDX is 15.6% CAGR (and that includes two massive crashes).

The expense ratio is 0.6% (excluding the borrowing cost which is part of the strategy).

What is the difference between 15.6% CAGR and 16.2% CAGR over let’s say 20 years?

If you started with $100k you’d end up with $1.8M or $2.0M. So that’s only 10% lifetime earnings lost to the ER.

Now let me ask you - are you able to earn 15.6% on any other comparably diversified investment?
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