Treasurys no longer provide the ballast for a portfolio

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Always passive
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Treasurys no longer provide the ballast for a portfolio

Post by Always passive »

There is a good article at the WSJ on the traditional hedging against stock market fall.
For those that have access...
https://www.wsj.com/articles/theres-no- ... lead_pos11

A bit of the txt here...
“There’s No Place to Hide Anymore When the Stock Market Plunges
All the obvious hedges against stock-market volatility—Treasurys, gold, bitcoin and the VIX—stopped working in September

September hurt shareholders, not only because stocks fell but also because the things they’d bought to protect their portfolios also fell. From the S&P 500’s high on the 2nd of the month, stocks, Treasurys, gold, bitcoin and the VIX volatility index all dropped.

This total failure of hedging is unusual, but investors need to get used to the idea that Treasurys no longer provide the ballast for a portfolio.”

———
So Bogleheads, why invest in investment grade bonds, treasuries, etc. unless you are retired and have no other choice? If you are young, 20% bonds should be the maximum, but what about some of us in the 60s, 70s, and 80s?
Blue456
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Blue456 »

Always passive wrote: Sat Oct 03, 2020 6:47 am ...but what about some of us in the 60s, 70s, and 80s?
CD ladder. Principle is guaranteed and will never go down. Pick anywhere from short duration to long duration as long as it matches your investment length. There are also T-bills and I bonds.
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LiveSimple
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Re: Treasurys no longer provide the ballast for a portfolio

Post by LiveSimple »

Save a bit more, work a bit more, spend a bit less.

All the risks are these it depends what shows up during our time, so we have to take care of ourselves.
Last edited by LiveSimple on Sat Oct 03, 2020 7:16 am, edited 1 time in total.
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JPH
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Re: Treasurys no longer provide the ballast for a portfolio

Post by JPH »

What happened in September? Did I miss something?
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beernutz
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Re: Treasurys no longer provide the ballast for a portfolio

Post by beernutz »

Author has a degree in Philosophy and Psychology.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Brianmcg321 »

Cash didn’t fall.
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dziuniek
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Re: Treasurys no longer provide the ballast for a portfolio

Post by dziuniek »

You could always lever up your treasury holdings for more 'balast'.
Though with the cost of leverage + how much lower the yield goes not sure it makes sense.

The stable value fund in my 457b looks better and better. (now 2.6% yield)

Otherwise I second the i-bonds idea! +1
hackingdragon
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Re: Treasurys no longer provide the ballast for a portfolio

Post by hackingdragon »

Yes, I just read this article as well. However I think the statement about treasuries isn't correct, and I'm a bit surprised the journalist presented it in such a way. First off, he's looking at 10 treasury prices as they fluctuate now, but this does not affect anyone who buys and hold the treasury to maturity. Loses would only be realized if you sold at the bottom. Moreover, short-term treasuries showed no volatility, as you would expect.

Image

Also, I think we've known for a while now that correlations are not constant over time. Correlations vary over time, and you shouldn't put too much weight in one sample.

Equity and rates have maintained or strengthened their historical correlation
Image

Anyways, I think for small personal investors with longer time horizons, I bonds and EE bonds look great.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by KlangFool »

OP,

My AA is 60/40. My bonds are the Total Bond Market Index and Intermediate-Term Treasury. It works very well in a volatile market.

In March, I rebalance. I sell my bond to buy the stock. Later on, I rebalance again. I sell my stock to buy the Bond. We probably will see another stock market drop soon. More rebalancing profit.


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Re: Treasurys no longer provide the ballast for a portfolio

Post by z3r0c00l »

Ballast is the perfect word for what treasuries and other similar investments offer. Ballast is generally passive, dead weight that simply lowers the center of mass and improves the righting moment of a ship. The idea that bonds must zig when stocks zag has always been a myth, they are ballast because they are not that volatile, not because they are the opposite of stocks at all times. If you are looking for the canting keel of investing, at considerable cost, then it would have to be an inverse fund like $SH.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by MikeG62 »

Blue456 wrote: Sat Oct 03, 2020 7:11 am
Always passive wrote: Sat Oct 03, 2020 6:47 am ...but what about some of us in the 60s, 70s, and 80s?
CD ladder. Principle is guaranteed and will never go down. Pick anywhere from short duration to long duration as long as it matches your investment length. There are also T-bills and I bonds.
+1 on CD's. They now represent almost 50% of my fixed income allocation. They provided real ballast/stability during Feb/March of 2020.
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dknightd
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Re: Treasurys no longer provide the ballast for a portfolio

Post by dknightd »

Always passive wrote: Sat Oct 03, 2020 6:47 am but what about some of us in the 60s, 70s, and 80s?
The feds stated goals of keeping interest rates low, and letting inflation creep up, are not ideal for retirees.
On the other hand, it will make it easier for the younger generations to pay off debt.

Basing a decision of whether treasuries provide a useful buffer on one month data seems premature.
There will always be times and stocks and bonds move in the same direction, and I suspect there will be times when they move in opposite directions.

Me, I keep some stocks, some bonds, some CDs, some stable value funds. Diversify and hope for the best.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by dknightd »

KlangFool wrote: Sat Oct 03, 2020 7:53 am
In March, I rebalance. I sell my bond to buy the stock. Later on, I rebalance again. I sell my stock to buy the Bond. We probably will see another stock market drop soon. More rebalancing profit.


KlangFool
I've always wondered how this works. That is, I wonder if many many people rebalancing might change prices.

For example. In March many people sold bonds and bought stocks. If enough people do this then the price of bonds would go down, and the price of stocks would go up. Supply and demand. I suspect that rebalancing people are a blip on the markets.

But sometimes I wonder. If many many people sell bonds, then there is a glut of bonds available, so the price goes down. If at the same time many people are wanting to buy stocks, then the price goes up.

I agree, there is some profit potential to rebalancing. Perhaps the tail can wag the dog? I'm not sure this is a good thing since it could make things more volatile, with no real overall benefit. On the otherhand, why not take advantage of the tail wagging back and forth if you can ;)
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by KlangFool »

dknightd wrote: Sat Oct 03, 2020 9:17 am
KlangFool wrote: Sat Oct 03, 2020 7:53 am
In March, I rebalance. I sell my bond to buy the stock. Later on, I rebalance again. I sell my stock to buy the Bond. We probably will see another stock market drop soon. More rebalancing profit.


KlangFool
I've always wondered how this works. That is, I wonder if many many people rebalancing might change prices.

For example. In March many people sold bonds and bought stocks. If enough people do this then the price of bonds would go down, and the price of stocks would go up. Supply and demand. I suspect that rebalancing people are a blip on the markets.

But sometimes I wonder. If many many people sell bonds, then there is a glut of bonds available, so the price goes down. If at the same time many people are wanting to buy stocks, then the price goes up.

I agree, there is some profit potential to rebalancing. Perhaps the tail can wag the dog? I'm not sure this is a good thing since it could make things more volatile, with no real overall benefit. On the otherhand, why not take advantage of the tail wagging back and forth if you can ;)

dknightd,


<<For example. In March many people sold bonds and bought stocks.>>


A) Most people follow the herd.

B) One fund people (Target Retirement Fund and Life Strategy Fund) do this without they know it.


C) Many 3 funds people do not rebalance.


<<I'm not sure this is a good thing since it could make things more volatile, with no real overall benefit. >>

You are asking human beings not to behave like human beings. As per human history across thousands of years, those things do not change.


You can see this in the forum.

A) Sell stock during the bear market


B) 100% stock during the bull market.


C) Not many folks understand that a fixed AA of 70/30 to 30/70 is a great "Market Timing" tool across the bull and the bear market.


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dknightd
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Re: Treasurys no longer provide the ballast for a portfolio

Post by dknightd »

KlangFool wrote: Sat Oct 03, 2020 9:29 am
B) One fund people (Target Retirement Fund and Life Strategy Fund) do this without they know it.
Do you mean they chase the yield, or do you mean they automatically rebalance?

I'm very tempted to put half my money in some kind of balanced fund. The costs are higher, but it would save me some work.
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Ferdinand2014 »

Always passive wrote: Sat Oct 03, 2020 6:47 am There is a good article at the WSJ on the traditional hedging against stock market fall.
For those that have access...
https://www.wsj.com/articles/theres-no- ... lead_pos11

A bit of the txt here...
“There’s No Place to Hide Anymore When the Stock Market Plunges
All the obvious hedges against stock-market volatility—Treasurys, gold, bitcoin and the VIX—stopped working in September

September hurt shareholders, not only because stocks fell but also because the things they’d bought to protect their portfolios also fell. From the S&P 500’s high on the 2nd of the month, stocks, Treasurys, gold, bitcoin and the VIX volatility index all dropped.

This total failure of hedging is unusual, but investors need to get used to the idea that Treasurys no longer provide the ballast for a portfolio.”

———
So Bogleheads, why invest in investment grade bonds, treasuries, etc. unless you are retired and have no other choice? If you are young, 20% bonds should be the maximum, but what about some of us in the 60s, 70s, and 80s?


FUAMX (Fidelity Intermediate Treasury) up 10% YTD
FNBGX (Fidelity Long Term Treasury bond) up 21.24% YTD
FUMBX (Fidelity Short Term Treasury Bond index) up 4.34% YTD
FXNAX (Fidelity total U.S. bond index) up 7% YTD

I would be happy to hide in any of these funds. Stupid article.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by whodidntante »

Ferdinand2014 wrote: Sat Oct 03, 2020 11:32 am FUAMX (Fidelity Intermediate Treasury) up 10% YTD
FNBGX (Fidelity Long Term Treasury bond) up 21.24% YTD
FUMBX (Fidelity Short Term Treasury Bond index) up 4.34% YTD
FXNAX (Fidelity total U.S. bond index) up 7% YTD

I would be happy to hide in any of these funds. Stupid article.
Without violating copyright, let's review some of the points made in the article.
- Treasuries provided a meaningful hedge in March, but not in September.
- Bunds (German sovereign bonds) provided a meaningful hedge in the Eurozone crisis but not in the COVID-19 crisis.
- And then he makes the leap that these two events portend the future. "For those with enough savings not to need to increase their wealth, Treasurys still offer a small guaranteed income, albeit less than expected inflation. The rest of us should plan for a more volatile portfolio and lower returns in the future than the past."

I don't think it's a stupid article, but to each her own, I guess.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by BrandonBogle »

z3r0c00l wrote: Sat Oct 03, 2020 8:08 am Ballast is the perfect word for what treasuries and other similar investments offer. Ballast is generally passive, dead weight that simply lowers the center of mass and improves the righting moment of a ship. The idea that bonds must zig when stocks zag has always been a myth, they are ballast because they are not that volatile, not because they are the opposite of stocks at all times. If you are looking for the canting keel of investing, at considerable cost, then it would have to be an inverse fund like $SH.
Exactly. I've never viewed bonds as having to profit while stocks decline, but rather, bonds won't decline extensively when stocks tank, thereby providing some stability or "ballast" to a portfolio in times of stress. To my knowledge, in September and forever in recent history, this has ALWAYS been true, without exception.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by yules »

Always passive wrote: Sat Oct 03, 2020 6:47 am There is a good article at the WSJ on the traditional hedging against stock market fall.
For those that have access...
https://www.wsj.com/articles/theres-no- ... lead_pos11

A bit of the txt here...
“There’s No Place to Hide Anymore When the Stock Market Plunges
All the obvious hedges against stock-market volatility—Treasurys, gold, bitcoin and the VIX—stopped working in September

September hurt shareholders, not only because stocks fell but also because the things they’d bought to protect their portfolios also fell. From the S&P 500’s high on the 2nd of the month, stocks, Treasurys, gold, bitcoin and the VIX volatility index all dropped.

This total failure of hedging is unusual, but investors need to get used to the idea that Treasurys no longer provide the ballast for a portfolio.”

———
So Bogleheads, why invest in investment grade bonds, treasuries, etc. unless you are retired and have no other choice? If you are young, 20% bonds should be the maximum, but what about some of us in the 60s, 70s, and 80s?
Wow, an entire month’s worth of data! I am very convinced!

Yules
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Re: Treasurys no longer provide the ballast for a portfolio

Post by JackoC »

z3r0c00l wrote: Sat Oct 03, 2020 8:08 am Ballast is the perfect word for what treasuries and other similar investments offer. Ballast is generally passive, dead weight that simply lowers the center of mass and improves the righting moment of a ship. The idea that bonds must zig when stocks zag has always been a myth, they are ballast because they are not that volatile, not because they are the opposite of stocks at all times. If you are looking for the canting keel of investing, at considerable cost, then it would have to be an inverse fund like $SH.
I agree, what the author means is that treasuries might not be like a passive anti-roll tank or fin stabilizers, but just ballast, dead weight down low that doesn't do anything useful besides increase static stability*. And as you suggest in long term past treasury and stock prices have been nearly uncorrelated on average, so treasuries were an inexactly tuned anti-roll tank on average in the past. Just using the very small sample of very recent events, yields have been pretty much stuck during the pretty mild stock sell off recently. And maybe that's a new semi-permanent thing, but you can find lots of past examples where that basically also happened.

I don't think low rates have any direct implication for my asset allocation. CD's now outclass treasuries for safe money where you don't *desperately* need liquidity (I 'reblance' to the extent I do using stock index futures in IRA, not actually selling and buying bonds and stocks). Yields aren't near zero considering CD's. But they are really low. But having achieved what we need to I see no reason to put more money at risk in a historically expensive stock market because interest rates are low. In another situation I don't know. But the market does not owe anyone any particular return. I think most people are better off mainly accepting the likelihood of lower returns and planning accordingly rather than seeking more risk because expected returns are lower.

*though any such analogy relies on not being *too* familiar with ship stability. Too much ballast down low, resulting in too high a metacentric height, increases peak roll acceleration and makes people aboard less comfortable. There can be a disadvantage to 'too much' safe money but it's not analogous to a ship with too much ballast.
Last edited by JackoC on Sat Oct 03, 2020 12:28 pm, edited 1 time in total.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Kenkat »

So stocks fell a few percent and bonds fell maybe half a percent (using total bond as a proxy). Whoop-de-doo, who really cares about this? Especially bonds falling half a percent? As they say on ESPN, come on, man.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by z3r0c00l »

I am always reminded of the fact that the worst year for a diversified bond fund doesn't even approach the worst day for stocks. This is true even if you ignore the dramatic anomaly of Black Monday which was 10x worse than the worst year for total bond. (About -22% vs -2.2%.)
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Re: Treasurys no longer provide the ballast for a portfolio

Post by hudson »

Always passive wrote: Sat Oct 03, 2020 6:47 am There is a good article at the WSJ on the traditional hedging against stock market fall.
For those that have access...
https://www.wsj.com/articles/theres-no- ... lead_pos11

A bit of the txt here...
“There’s No Place to Hide Anymore When the Stock Market Plunges
All the obvious hedges against stock-market volatility—Treasurys, gold, bitcoin and the VIX—stopped working in September

September hurt shareholders, not only because stocks fell but also because the things they’d bought to protect their portfolios also fell. From the S&P 500’s high on the 2nd of the month, stocks, Treasurys, gold, bitcoin and the VIX volatility index all dropped.

This total failure of hedging is unusual, but investors need to get used to the idea that Treasurys no longer provide the ballast for a portfolio.”

———
So Bogleheads, why invest in investment grade bonds, treasuries, etc. unless you are retired and have no other choice? If you are young, 20% bonds should be the maximum, but what about some of us in the 60s, 70s, and 80s?
Why bonds or treasuries? Safety
CDs still work for me. Many have been buying CDs, bonds, and treasuries for years, so they may still be collecting 3% plus interest. As you know, interest rates didn't start dropping until March. If I had money to invest today, I'd likely go with the best available 5 year CD or a high quality muni fund.

20% bonds the max for the young? It depends. If you believe that the stock market is the only path to retirement maybe. I think that continued living below your means and saving is the key. It also depends on one's risk tolerance; I couldn't tolerate 80% stocks at any age.

Bottom Line: I don't see a total failure of fixed income....just reduced payout for fixed income investments since March. Fixed income purchases before March are good...for the duration.
Last edited by hudson on Sat Oct 03, 2020 9:04 pm, edited 1 time in total.
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Always passive
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Always passive »

Kenkat wrote: Sat Oct 03, 2020 12:27 pm So stocks fell a few percent and bonds fell maybe half a percent (using total bond as a proxy). Whoop-de-doo, who really cares about this? Especially bonds falling half a percent? As they say on ESPN, come on, man.
Forgive me but your answer is not the reason that some, including myself, are highly concern about the future of bonds. Have you checked the YTM of the total US bond ? If you are happy about a yield of less of 2% for the next 5 of so you, then do not worry
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Re: Treasurys no longer provide the ballast for a portfolio

Post by CardinalRule »

I can’t get over how the ghost of Milton Friedman is haunting the sleep of that bond manager. :happy

Interesting, from a personal asset allocation perspective, that some of these bond funds can invest in 20% equities.

I’ve always been skeptical of comparisons between stock and debt yields for specific companies, like Pfizer in the article. The price of the stock could obviously tank.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by FIREchief »

TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by rockstar »

beernutz wrote: Sat Oct 03, 2020 7:26 am Author has a degree in Philosophy and Psychology.
What does it matter? Most Wall Street jobs are sales jobs. They'd be just as well as off hiring used car salesmen.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Always passive »

FIREchief wrote: Sat Oct 03, 2020 1:31 pm TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Kenkat »

Always passive wrote: Sat Oct 03, 2020 1:03 pm
Kenkat wrote: Sat Oct 03, 2020 12:27 pm So stocks fell a few percent and bonds fell maybe half a percent (using total bond as a proxy). Whoop-de-doo, who really cares about this? Especially bonds falling half a percent? As they say on ESPN, come on, man.
Forgive me but your answer is not the reason that some, including myself, are highly concern about the future of bonds. Have you checked the YTM of the total US bond ? If you are happy about a yield of less of 2% for the next 5 of so you, then do not worry
The yield is the yield. What if bonds return 2% and inflation is essentially zero? That’s not so bad. Plus, I’m not really looking for my ballast to grow in any significant way going forward; that’s not what it is for.

Now if the article had been titled “The capital gains you’ve gotten in bonds due to the long term fall of interest rates is over”, maybe they’d be on to something. But again, I don’t buy bonds expecting capital gains, just interest.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by FIREchief »

Always passive wrote: Sat Oct 03, 2020 1:41 pm
FIREchief wrote: Sat Oct 03, 2020 1:31 pm TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by KlangFool »

dknightd wrote: Sat Oct 03, 2020 11:22 am
KlangFool wrote: Sat Oct 03, 2020 9:29 am
B) One fund people (Target Retirement Fund and Life Strategy Fund) do this without they know it.
Do you mean they chase the yield, or do you mean they automatically rebalance?

I'm very tempted to put half my money in some kind of balanced fund. The costs are higher, but it would save me some work.

dknightd,

1) They automatically rebalance.


2) 40% of my portfolio is in the Wellington Fund.


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Re: Treasurys no longer provide the ballast for a portfolio

Post by pennsylvania211 »

z3r0c00l wrote: Sat Oct 03, 2020 8:08 am Ballast is the perfect word for what treasuries and other similar investments offer. Ballast is generally passive, dead weight that simply lowers the center of mass and improves the righting moment of a ship. The idea that bonds must zig when stocks zag has always been a myth, they are ballast because they are not that volatile, not because they are the opposite of stocks at all times. If you are looking for the canting keel of investing, at considerable cost, then it would have to be an inverse fund like $SH.
This. Thank you for putting it so well.

@Original poster, I think you're looking for the opposite of stocks, something that's negatively correlated. A ballast is not a negative correlating asset, it is just something that moves a lot less, not something that moves in the OPPOSITE direction.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Random Musings »

Sounds less like a financial article and more of a B & Moan session. Sometimes, you have to accept what the market gives you for the particular asset classes you own. If you don't like it, can always take on different portfolio risks, but the outcomes may not turn out the way you want.

Asset classes have correlation factors with each other, but that's over time which means that there are no correlation guarantees either for any particular event or shorter time frame.

RM
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Ramjet »

Everything seems to be working how you would expect when crisis arises

March-February 2020 returns:

S&P 500: -19.55%
BLV: 1.49%
EDV: 16.93%
Last edited by Ramjet on Sat Oct 03, 2020 4:27 pm, edited 1 time in total.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Always passive »

FIREchief wrote: Sat Oct 03, 2020 2:31 pm
Always passive wrote: Sat Oct 03, 2020 1:41 pm
FIREchief wrote: Sat Oct 03, 2020 1:31 pm TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
You got me with your response. Guaranteeing purchasing power means to me that the bond keeps up with inflation. So how can TIPS accomplish that when every single one for any maturity you pick has a negative real yield. Maybe I am missing something. Can you help me understand your logic?
Ferdinand2014
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Ferdinand2014 »

Always passive wrote: Sat Oct 03, 2020 4:27 pm
FIREchief wrote: Sat Oct 03, 2020 2:31 pm
Always passive wrote: Sat Oct 03, 2020 1:41 pm
FIREchief wrote: Sat Oct 03, 2020 1:31 pm TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
You got me with your response. Guaranteeing purchasing power means to me that the bond keeps up with inflation. So how can TIPS accomplish that when every single one for any maturity you pick has a negative real yield. Maybe I am missing something. Can you help me understand your logic?
A TIPS fund can lose value. A TIPS individual bond cannot by definition as long as you hold it to maturity and the inflation calculation the government uses matches your personal inflation. A TIPS individual bond will periodically increase its principle to compensate for inflation and subsequently apply the auction purchase interest rate to the higher principal which then increases your interest payment to accommodate inflation. You are guaranteed to receive your original principal along with the increased principal and associated periodic interest payments. In a deflationary environment you are also guaranteed to receive at a minimum your original principal.
Last edited by Ferdinand2014 on Sat Oct 03, 2020 5:10 pm, edited 2 times in total.
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FIREchief
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Re: Treasurys no longer provide the ballast for a portfolio

Post by FIREchief »

Always passive wrote: Sat Oct 03, 2020 4:27 pm
FIREchief wrote: Sat Oct 03, 2020 2:31 pm
Always passive wrote: Sat Oct 03, 2020 1:41 pm
FIREchief wrote: Sat Oct 03, 2020 1:31 pm TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
You got me with your response. Guaranteeing purchasing power means to me that the bond keeps up with inflation. So how can TIPS accomplish that when every single one for any maturity you pick has a negative real yield. Maybe I am missing something. Can you help me understand your logic?
It's very simple. I buy a ten year TIPS today for $1100 and I have guaranteed purchasing power of $1000 ten years from now. I never said anything about not losing some of today's purchasing power, just having a guaranteed future purchasing power. How is that not clear? :confused
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Hector »

Article talks about stock fall in September. US stock fell ~3.5% and ex-US stock fell ~1.82%. That fall was not large enough for many boglehads to rebalance. And we started talking about this...
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Blue456 »

FIREchief wrote: Sat Oct 03, 2020 5:07 pm
It's very simple. I buy a ten year TIPS today for $1100 and I have guaranteed purchasing power of $1000 ten years from now. I never said anything about not losing some of today's purchasing power, just having a guaranteed future purchasing power. How is that not clear? :confused
You forgot about taxes. 1,000 presumes you paid zero tax. Which is not possible.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by anoop »

LiveSimple wrote: Sat Oct 03, 2020 7:15 am Save a bit more, work a bit more, spend a bit less.

All the risks are these it depends what shows up during our time, so we have to take care of ourselves.
Should be more like save a lot more, work a lot more, and spend a lot less.
000
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Re: Treasurys no longer provide the ballast for a portfolio

Post by 000 »

Brianmcg321 wrote: Sat Oct 03, 2020 7:31 am Cash didn’t fall.
+1
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Kevin M »

Here's the article not behind a paywall: [link which violates WSJ terms of service removed by admin LadyGeek]
Treasurys have now followed suit. In the first phase of the pandemic they made roughly 10%, before the brief period of chaos in the bond market. But since then they’ve been basically flat, giving investors little to no protection—including inflicting a small loss as stocks fell from the Sept. 2 high.
Here's a growth chart for US stocks, intermediate-term Treasuries, and extended-duration Treasuries since Sept 2:

Image

Kevin
Wiki ||.......|| Suggested format for Asking Portfolio Questions (edit original post)
rockstar
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Re: Treasurys no longer provide the ballast for a portfolio

Post by rockstar »

FIREchief wrote: Sat Oct 03, 2020 5:07 pm
Always passive wrote: Sat Oct 03, 2020 4:27 pm
FIREchief wrote: Sat Oct 03, 2020 2:31 pm
Always passive wrote: Sat Oct 03, 2020 1:41 pm
FIREchief wrote: Sat Oct 03, 2020 1:31 pm TL:DR. It sounds like from some of the forum comments that this was just one more instance of click bait written by somebody who a) doesn't understand the basics of investing or b) has an agenda. I'm not sure what exactly is meant by "ballast," but a healthy ladder of US treasuries will always provide a guaranteed cash flow at maturity. I prefer TIPS so that it's guaranteed purchasing power. 8-)
Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
You got me with your response. Guaranteeing purchasing power means to me that the bond keeps up with inflation. So how can TIPS accomplish that when every single one for any maturity you pick has a negative real yield. Maybe I am missing something. Can you help me understand your logic?
It's very simple. I buy a ten year TIPS today for $1100 and I have guaranteed purchasing power of $1000 ten years from now. I never said anything about not losing some of today's purchasing power, just having a guaranteed future purchasing power. How is that not clear? :confused
No, you don't. TIPS have negative yields. You have to have at least a zero yield to maintain your purchasing power with TIPS. The current negative yield is going to offset your inflation protection. You can't even get a zero yield at 30 years.

https://www.bloomberg.com/markets/rates ... t-bonds/us
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Re: Treasurys no longer provide the ballast for a portfolio

Post by FIREchief »

rockstar wrote: Sat Oct 03, 2020 6:37 pm
FIREchief wrote: Sat Oct 03, 2020 5:07 pm
Always passive wrote: Sat Oct 03, 2020 4:27 pm
FIREchief wrote: Sat Oct 03, 2020 2:31 pm
Always passive wrote: Sat Oct 03, 2020 1:41 pm

Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
You got me with your response. Guaranteeing purchasing power means to me that the bond keeps up with inflation. So how can TIPS accomplish that when every single one for any maturity you pick has a negative real yield. Maybe I am missing something. Can you help me understand your logic?
It's very simple. I buy a ten year TIPS today for $1100 and I have guaranteed purchasing power of $1000 ten years from now. I never said anything about not losing some of today's purchasing power, just having a guaranteed future purchasing power. How is that not clear? :confused
No, you don't. TIPS have negative yields. You have to have at least a zero yield to maintain your purchasing power with TIPS. The current negative yield is going to offset your inflation protection. You can't even get a zero yield at 30 years.

https://www.bloomberg.com/markets/rates ... t-bonds/us

I never said anything about "maintaining purchasing power." I said that they had guaranteed purchasing power (twice). Are you referring to a post I made elsewhere??
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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FIREchief
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Re: Treasurys no longer provide the ballast for a portfolio

Post by FIREchief »

Blue456 wrote: Sat Oct 03, 2020 5:34 pm
FIREchief wrote: Sat Oct 03, 2020 5:07 pm
It's very simple. I buy a ten year TIPS today for $1100 and I have guaranteed purchasing power of $1000 ten years from now. I never said anything about not losing some of today's purchasing power, just having a guaranteed future purchasing power. How is that not clear? :confused
You forgot about taxes. 1,000 presumes you paid zero tax. Which is not possible.
Roth?? HSA?? (I have TIPS in both)
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Treasurys no longer provide the ballast for a portfolio

Post by Robot Monster »

rockstar wrote: Sat Oct 03, 2020 6:37 pm
FIREchief wrote: Sat Oct 03, 2020 5:07 pm
Always passive wrote: Sat Oct 03, 2020 4:27 pm
FIREchief wrote: Sat Oct 03, 2020 2:31 pm
Always passive wrote: Sat Oct 03, 2020 1:41 pm

Are you aware that presently TIPS Yield less that inflation, in fact about 1% less? So, how can you assume that they guarantee purchasing power.
They absolutely guarantee purchasing power. The fact that the purchasing power in ten years is less than the purchase price in no way affects the guaranteed aspect.
You got me with your response. Guaranteeing purchasing power means to me that the bond keeps up with inflation. So how can TIPS accomplish that when every single one for any maturity you pick has a negative real yield. Maybe I am missing something. Can you help me understand your logic?
It's very simple. I buy a ten year TIPS today for $1100 and I have guaranteed purchasing power of $1000 ten years from now. I never said anything about not losing some of today's purchasing power, just having a guaranteed future purchasing power. How is that not clear? :confused
No, you don't. TIPS have negative yields. You have to have at least a zero yield to maintain your purchasing power with TIPS. The current negative yield is going to offset your inflation protection. You can't even get a zero yield at 30 years.

https://www.bloomberg.com/markets/rates ... t-bonds/us
Just to make sure everyone understands something about negative yielding TIPS. From the TIPSWatch FAQ:
Why does the Treasury issue TIPS with a coupon rate of 0.125% even though the yield to maturity will end up being negative?

So far, the Treasury hasn’t been willing to issue a TIPS with a zero or negative coupon interest rate. So when yields are negative, it sets the coupon rate at 0.125% and then lets buyers pay up at auction to get the resulting yield that is negative to inflation.
Source

In FIREChief's example above, he buys a $1000 10yr TIPS for $1100. Essentially, he's sacrificing $100 to protect the purchasing power of the remaining $1000.
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LiveSimple
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Re: Treasurys no longer provide the ballast for a portfolio

Post by LiveSimple »

anoop wrote: Sat Oct 03, 2020 5:35 pm
LiveSimple wrote: Sat Oct 03, 2020 7:15 am Save a bit more, work a bit more, spend a bit less.

All the risks are these it depends what shows up during our time, so we have to take care of ourselves.
Should be more like save a lot more, work a lot more, and spend a lot less.
Sure agreed !!!
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Re: Treasurys no longer provide the ballast for a portfolio

Post by L82GAME »

LiveSimple wrote: Sat Oct 03, 2020 7:15 pm
anoop wrote: Sat Oct 03, 2020 5:35 pm
LiveSimple wrote: Sat Oct 03, 2020 7:15 am Save a bit more, work a bit more, spend a bit less.

All the risks are these it depends what shows up during our time, so we have to take care of ourselves.
Should be more like save a lot more, work a lot more, and spend a lot less.
Sure agreed !!!
+1 and sure trying hard to do so!
“Simplicity is the ultimate sophistication.” - Lao Tzu
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Re: Treasurys no longer provide the ballast for a portfolio

Post by abuss368 »

I would be fine owning a Treasury fund if that was my option. I would simply read but not act on this article.
John C. Bogle: “Simplicity is the master key to financial success."
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Re: Treasurys no longer provide the ballast for a portfolio

Post by abuss368 »

I was fortunate to attend a lecture of David Swensen’s years ago where he continued to recommend the portfolio from “Unconventional Success”. That portfolio included Treasuries and TIPS. I could imagine Mr. Swensen’s response to this!
John C. Bogle: “Simplicity is the master key to financial success."
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