Buying Bonds Because They Actually Work

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Northern Flicker
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

Booglie wrote: That's not the entire issue though. When people think about bonds, they are thinking of the bond ETFs, which are easier to trade and don't necessarily require direct access to the US bond market. For US bonds, this means that if the rates slowly and constantly rise for 10 years, you'll get negative real returns (not just nominal) for 10 years. With actual bonds, if their market-to-market value depreciates, you're at least guaranteed the nominal value at the end of the period.
End of what period? Are you shutting down your portfolio on some date? Aligning bond maturities with date of death?

Holding individual bonds provides the illusion of no risk of principal only if you do not reinvest cash flows from coupon payments and maturing bonds. Bond fund managers generally beat the performance of individuals managing their own bonds because they stay fully invested, maintainibg portfolio duration.
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Re: Buying Bonds Because They Actually Work

Post by UpperNwGuy »

willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm
peskypesky wrote: Fri Dec 03, 2021 7:10 pm
UpperNwGuy wrote: Fri Dec 03, 2021 6:32 pm
peskypesky wrote: Fri Dec 03, 2021 6:00 pm

that is why, for the first time in my life, I am thinking of buying gold. A lot of gold.
Good luck with that. I'm sticking to stocks and bonds, and I think I'll come out ahead of you.
I'm not trying to out-do you. I'm just trying to preserve as much of my net worth as possible.
Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
Because I'm focusing on the long term, not the short term. I'm willing for my bonds to decline in the short run if they increase in the long run. People on this forum seem to be focused on the short term.
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Re: Buying Bonds Because They Actually Work

Post by Booglie »

Northern Flicker wrote: Fri Dec 03, 2021 7:37 pm
Booglie wrote: That's not the entire issue though. When people think about bonds, they are thinking of the bond ETFs, which are easier to trade and don't necessarily require direct access to the US bond market. For US bonds, this means that if the rates slowly and constantly rise for 10 years, you'll get negative real returns (not just nominal) for 10 years. With actual bonds, if their market-to-market value depreciates, you're at least guaranteed the nominal value at the end of the period.
End of what period? Are you shutting down your portfolio on some date? Aligning bond maturities with date of death?
We're talking about holding bonds until they mature. After that, you'll either reinvest or use the money for whatever you planned the investment for.
Northern Flicker wrote: Fri Dec 03, 2021 7:37 pm Holding individual bonds provides the illusion of no risk of principal only if you do not reinvest cash flows from coupon payments and maturing bonds. Bond fund managers generally beat the performance of individuals managing their own bonds because they stay fully invested, maintainibg portfolio duration.
If you just hold the bond (no withdrawing anything), holding the bond will always give you superior returns compared to an ETF of corresponding duration. I.e, a 7-year-bond should always give superior returns compared to a 7-year-bond ETF – especially because the ETF has extra taxes. They're small, but are there.
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

Booglie wrote: Fri Dec 03, 2021 7:37 pm
Northern Flicker wrote: Fri Dec 03, 2021 7:22 pm
Booglie wrote: Fri Dec 03, 2021 6:48 pm
willthrill81 wrote: Fri Dec 03, 2021 6:45 pm
Booglie wrote: Fri Dec 03, 2021 6:43 pm

The emergency fund would be exactly the cash portion of your portfolio, or a risk-free asset. It doesn't matter what exactly it is, as long it has good liquidity and risk-free returns (or, at least, extremely low risk).
That sounds good on paper, but empirical studies have shown that cash buckets for short-term spending don't really improve any measurable outcome.
But the key here is not really performance. It's liquidity. If you suddenly a surgery, you'd better have that extra $5,000 to pay for it or else. A life emergency during a crash would absolutely kill your portfolio, even if you're an expert investor. And people tend to need money the most during crashes, because it gets more scarce.
A mix of intermediate treasuries, TIPS and I bonds will provide a good source of liquidity. You don't need to hold cash. A risk parity portfolio of intermediate treasuries and short TIPS (about 1/3 treasuries and 2/3 TIPS) would also be a reasonable emergency fund. Here is a comparison with cash in this year's rising rate outcome so far:

https://www.portfoliovisualizer.com/bac ... ion3_2=100
Notice that, in some brief periods, even that has an ever-so-slightly negative performance. Depending on what age and your needs are, that may not be tolerable.

Regardless of how I'm positioned, I always have e.g, 1% of my current portfolio for immediate expenses (paying utilities, buying groceries). That's money I absolutely need to have by the end of the month.

Of course, if inflation gets really, REALLY bad, that won't be an option. But hopefully, we are far away from that scenario (yet?).
In aggregate, yes, but they do not move in lockstep. Here you can see the separated performance over the period.

https://www.portfoliovisualizer.com/bac ... ion2_3=100

You could combine with some cash to smooth it out. Holding a large cash position generally means having less cash to pay for expenses when needed due to lower returns.
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peskypesky
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Re: Buying Bonds Because They Actually Work

Post by peskypesky »

Is Gold The New Bonds?

https://seekingalpha.com/article/439190 ... -new-bonds

A lot of food for thought.
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Re: Buying Bonds Because They Actually Work

Post by UpperNwGuy »

peskypesky wrote: Fri Dec 03, 2021 7:44 pm Is Gold The New Bonds?

https://seekingalpha.com/article/439190 ... -new-bonds

A lot of food for thought.
Not a very convincing article.
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm
peskypesky wrote: Fri Dec 03, 2021 7:10 pm
UpperNwGuy wrote: Fri Dec 03, 2021 6:32 pm

Good luck with that. I'm sticking to stocks and bonds, and I think I'll come out ahead of you.
I'm not trying to out-do you. I'm just trying to preserve as much of my net worth as possible.
Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
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Re: Buying Bonds Because They Actually Work

Post by 000 »

peskypesky wrote: Fri Dec 03, 2021 7:44 pm Is Gold The New Bonds?

https://seekingalpha.com/article/439190 ... -new-bonds

A lot of food for thought.
Probably over the long term but I still think treasuries have one more rally left in them. Fed policy tends to be reactive not proactive so they may actually taper us into a liquidity crisis / short term deflationary crash.
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Northern Flicker
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

Booglie wrote: Fri Dec 03, 2021 7:41 pm
Northern Flicker wrote: Fri Dec 03, 2021 7:37 pm
Booglie wrote: That's not the entire issue though. When people think about bonds, they are thinking of the bond ETFs, which are easier to trade and don't necessarily require direct access to the US bond market. For US bonds, this means that if the rates slowly and constantly rise for 10 years, you'll get negative real returns (not just nominal) for 10 years. With actual bonds, if their market-to-market value depreciates, you're at least guaranteed the nominal value at the end of the period.
End of what period? Are you shutting down your portfolio on some date? Aligning bond maturities with date of death?
We're talking about holding bonds until they mature. After that, you'll either reinvest or use the money for whatever you planned the investment for.
And when you reinvest, you stay invested, and have the same sensitivity to rates as a bond fund. The difference is that you are not marking the bonds to market and computing the NAV which nonetheless exists as a valuation if you need to liquidate funds.
Booglie wrote:
Northern Flicker wrote: Fri Dec 03, 2021 7:37 pm Holding individual bonds provides the illusion of no risk of principal only if you do not reinvest cash flows from coupon payments and maturing bonds. Bond fund managers generally beat the performance of individuals managing their own bonds because they stay fully invested, maintainibg portfolio duration.
If you just hold the bond (no withdrawing anything), holding the bond will always give you superior returns compared to an ETF of corresponding duration. I.e, a 7-year-bond should always give superior returns compared to a 7-year-bond ETF – especially because the ETF has extra taxes. They're small, but are there.
I don't know what you mean by 7-year ETF. And I don't know what taxes you are talking about. But if you mean fund duration, a 7-year bond has a shorter duration than 7 years at issue and the duration decreases to zero at maturity. Bond funds generally beat individual bond investors handily because they maintain duration by reinvesting proceeds efficiently.
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

000 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:44 pm Is Gold The New Bonds?

https://seekingalpha.com/article/439190 ... -new-bonds

A lot of food for thought.
Probably over the long term but I still think treasuries have one more rally left in them. Fed policy tends to be reactive not proactive so they may actually taper us into a liquidity crisis / short term deflationary crash.
I certainly hope that you're wrong, and I doubt that the Fed would voluntarily attempt a deflationary crash, even if it was intended to be a short one. Deflation is scary, and there doesn't seem to be a great way to escape it once it really takes hold. I've read that part of the reason the Fed has targeted 2% inflation is because they want to stay as far away from deflation as they reasonably can.
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

Northern Flicker wrote: Fri Dec 03, 2021 7:22 pm A mix of intermediate treasuries, TIPS and I bonds will provide a good source of liquidity. You don't need to hold cash.
Would that mix be preferable to cash in the rising rate environment of, let's say 1977-1979? link
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Re: Buying Bonds Because They Actually Work

Post by peskypesky »

willthrill81 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm
peskypesky wrote: Fri Dec 03, 2021 7:10 pm

I'm not trying to out-do you. I'm just trying to preserve as much of my net worth as possible.
Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
That's very cool! Thank you. :)
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Re: Buying Bonds Because They Actually Work

Post by 000 »

willthrill81 wrote: Fri Dec 03, 2021 7:57 pm
000 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:44 pm Is Gold The New Bonds?

https://seekingalpha.com/article/439190 ... -new-bonds

A lot of food for thought.
Probably over the long term but I still think treasuries have one more rally left in them. Fed policy tends to be reactive not proactive so they may actually taper us into a liquidity crisis / short term deflationary crash.
I certainly hope that you're wrong, and I doubt that the Fed would voluntarily attempt a deflationary crash, even if it was intended to be a short one. Deflation is scary, and there doesn't seem to be a great way to escape it once it really takes hold. I've read that part of the reason the Fed has targeted 2% inflation is because they want to stay as far away from deflation as they reasonably can.
Ah, my friend willthrill81, you like so many others are still operating under the 'Fed knows what it's doing' model but really they are stumbling about in the dark. They have unleashed massive liquidity over the last 19 months which will very likely lead to another overreaction in the opposite direction in an attempt to tame inflation, which has started bigly in entry level wages. They're not going to 'voluntarily attempt a deflationary crash' but it seems they may not understand the magnitude of their actions.
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

000 wrote: Fri Dec 03, 2021 8:08 pm
willthrill81 wrote: Fri Dec 03, 2021 7:57 pm
000 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:44 pm Is Gold The New Bonds?

https://seekingalpha.com/article/439190 ... -new-bonds

A lot of food for thought.
Probably over the long term but I still think treasuries have one more rally left in them. Fed policy tends to be reactive not proactive so they may actually taper us into a liquidity crisis / short term deflationary crash.
I certainly hope that you're wrong, and I doubt that the Fed would voluntarily attempt a deflationary crash, even if it was intended to be a short one. Deflation is scary, and there doesn't seem to be a great way to escape it once it really takes hold. I've read that part of the reason the Fed has targeted 2% inflation is because they want to stay as far away from deflation as they reasonably can.
Ah, my friend willthrill81, you like so many others are still operating under the 'Fed knows what it's doing' model but really they are stumbling about in the dark. They have unleashed massive liquidity over the last 19 months which will very likely lead to another overreaction in the opposite direction in an attempt to tame inflation, which has started bigly in entry level wages. They're not going to 'voluntarily attempt a deflationary crash' but it seems they may not understand the magnitude of their actions.
I'll grant you that.

Here's to your long strangle! :beer
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Re: Buying Bonds Because They Actually Work

Post by Ocean77 »

willthrill81 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm
peskypesky wrote: Fri Dec 03, 2021 7:10 pm

I'm not trying to out-do you. I'm just trying to preserve as much of my net worth as possible.
Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
Rats! Then RTM would mean it may perform poorly over the next 20 years.
30% US Stocks | 30% Int Stocks | 40% Bonds
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Re: Buying Bonds Because They Actually Work

Post by Mountain Doc »

willthrill81 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm
peskypesky wrote: Fri Dec 03, 2021 7:10 pm

I'm not trying to out-do you. I'm just trying to preserve as much of my net worth as possible.
Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
It's probably worth noting this is not true for the last 5, 10, 15, 25, 30, or 35 years. Looking only at 20 might make gold seem a little better than it actually is :happy
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Re: Buying Bonds Because They Actually Work

Post by Grt2bOutdoors »

willthrill81 wrote: Fri Dec 03, 2021 3:28 pm
Elysium wrote: Fri Dec 03, 2021 3:26 pm Gee..Blackrock just found out in last couple of weeks they're working :oops:
And this is the supposed 'smart money'? 🙄

There is a lot more intelligence around here than what seems to be present at many of the big brokerages at least.
The smart money is motivated or shall we say “incentivized” by things other than common sense.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Buying Bonds Because They Actually Work

Post by etfan »

Carguy85 wrote: Fri Dec 03, 2021 7:09 pm
Robot Monster wrote: Fri Dec 03, 2021 3:50 pm Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")
Wow, only 5% international...surprising given some recent anti-American comments from him. Anyhow why anyone would think someone with a few million should mirror the allocation of someone with $100mil is beyond me.
At $100M, it wouldn't matter if all of it was just in Savings accounts or Checking accounts. I would still have trouble spending all of it during my lifetime.

Or, for that matter, what's the risk of investing ALL of it in S&P500, when one could lose 90% of it and still remain a multi-millionaire.

The portfolios of people like him are completely irrelevant to the average people because they're just in a whole different league.
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Re: Buying Bonds Because They Actually Work

Post by Carguy85 »

Exactly
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

Mountain Doc wrote: Fri Dec 03, 2021 8:59 pm
willthrill81 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm

Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
It's probably worth noting this is not true for the last 5, 10, 15, 25, 30, or 35 years. Looking only at 20 might make gold seem a little better than it actually is :happy
Very true. When stocks were on a long tear in the 80s and 90s, gold's performance was abysmal. Over the last decade, gold's returns have been similar to that of bonds. But when stocks had a 'lost decade' in the 2000s, gold soared like a kite. In some situations, including retirement, that can be a very good thing.

YMMV.
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

Grt2bOutdoors wrote: Fri Dec 03, 2021 9:02 pm
willthrill81 wrote: Fri Dec 03, 2021 3:28 pm
Elysium wrote: Fri Dec 03, 2021 3:26 pm Gee..Blackrock just found out in last couple of weeks they're working :oops:
And this is the supposed 'smart money'? 🙄

There is a lot more intelligence around here than what seems to be present at many of the big brokerages at least.
The smart money is motivated or shall we say “incentivized” by things other than common sense.
Indeed. That's why I think the term 'smart money' was never more than a thinly veiled attempt to get retail investors to let salespeople manage their money for them.
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Northern Flicker
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

Suppose an investor bought a 5 year treasury on 1/1/2015 and held it to maturity, collecting interest and return of principal at the end. The annualized yield was 1.61% per treasury.gov. The investor receives 5 * 1.61 = 8.05% total return. With compounding the return would be a little higher, but the claim above was that an investor who just buys a bond and holds it to maturity receives a higher return than investing in a bond fund with duration matched to the term of the bond.

Of course the cash received from coupon payments will earn some interest at a lower rate than the bond, so calculating with the bond interest compounding would overstate the total return. Nonetheless with compounding, total return is 1.0161^5 - 1 = 8.3%.

The ending rate of the 5-year bond was 1.69%, so a slight increase in rates over the period. How did the mutual fund VSIGX with about a 5 year duration do over the same period?

It returned 12.4%.

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

But there is still an asymmetry. In a period of falling rates the disparity in return is even greater.
Last edited by Northern Flicker on Sat Dec 04, 2021 1:07 pm, edited 2 times in total.
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

In the so called taper tantrum of 2013, the last time the Fed tapered bond purchases, the 5-year treasury rate went from the low point of the year at 0.65% on 5/2/2013 to 1.78% on 9/10/2013, the high point of the year.

https://www.treasury.gov/resource-cente ... &year=2013

So how did gold do when rates rose? It lost 6.77%.

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

The intermediate treasury fund VSIGX lost 4.75% in the same period:

http://quotes.morningstar.com/chart/fun ... 2%3A955%7D

Gold is very unpredictable of course, but I think it is not uncommon for gold prices to fall when rates rise. With no yield, gold is a long-duration asset. It is an asset to incorporate into an allocation with a long-term focus, not one to try to time based on economic conditions.
Last edited by Northern Flicker on Sat Dec 04, 2021 1:05 pm, edited 1 time in total.
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

etfan wrote: Fri Dec 03, 2021 9:04 pm
Carguy85 wrote: Fri Dec 03, 2021 7:09 pm
Robot Monster wrote: Fri Dec 03, 2021 3:50 pm Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")
Wow, only 5% international...surprising given some recent anti-American comments from him. Anyhow why anyone would think someone with a few million should mirror the allocation of someone with $100mil is beyond me.
At $100M, it wouldn't matter if all of it was just in Savings accounts or Checking accounts. I would still have trouble spending all of it during my lifetime.

Or, for that matter, what's the risk of investing ALL of it in S&P500, when one could lose 90% of it and still remain a multi-millionaire.

The portfolios of people like him are completely irrelevant to the average people because they're just in a whole different league.
If he's used to spending two or three million a year, losing 90% of his money would result in a significant lifestyle change. Wouldn't he be in the same league with someone worth 10 million, who wants to be able to spend two or three hundred thousand a year?

Maybe I'm missing something.

Is someone with 10 million in a different league than someone with 1 million, and are their portfolios, therefore, completely irrelevant to one another?

Are two people of the same net worth, but with vastly different annual spend %'s, in different leagues?
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Re: Buying Bonds Because They Actually Work

Post by peskypesky »

Mountain Doc wrote: Fri Dec 03, 2021 8:59 pm
willthrill81 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm
UpperNwGuy wrote: Fri Dec 03, 2021 7:13 pm

Good luck with that. I'm sticking with stocks and bonds, and I think I'll preserve more of my net worth than you will preserve of yours.
I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
It's probably worth noting this is not true for the last 5, 10, 15, 25, 30, or 35 years. Looking only at 20 might make gold seem a little better than it actually is :happy
good point. But since I'm mostly interested in gold vs bonds, I'll note that gold outperformed bonds for 5,15,20 and 25 year periods.
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Re: Buying Bonds Because They Actually Work

Post by etfan »

Robot Monster wrote: Fri Dec 03, 2021 11:33 pm
etfan wrote: Fri Dec 03, 2021 9:04 pm The portfolios of people like him are completely irrelevant to the average people because they're just in a whole different league.
If he's used to spending two or three million a year, losing 90% of his money would result in a significant lifestyle change. Wouldn't he be in the same league with someone worth 10 million, who wants to be able to spend two or three hundred thousand a year?

Maybe I'm missing something.

Is someone with 10 million in a different league than someone with 1 million, and are their portfolios, therefore, completely irrelevant to one another?

Are two people of the same net worth, but with vastly different annual spend %'s, in different leagues?
I guess losing your private Greek island plus a few yachts is as much of a "lifestyle change" as losing your house and ending up in a homeless shelter, as long as the loss percentage is the same! But I still don't find that to be in the same league.
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Re: Buying Bonds Because They Actually Work

Post by dodecahedron »

Robot Monster wrote: Fri Dec 03, 2021 3:50 pm
Booglie wrote: Fri Dec 03, 2021 3:35 pm Currently, your only surefire way to avoid volatility is to reduce positions (in this case, to cash). Unsurprisingly, a 50% SPY / 50% cash would reduce the volatlity by 50% (duh).
Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")

He did say, in the same interview, however, that he loves 60/40, that it's a terrific idea. (Though, apparently, not for him.)
Thanks for the above link to a fascinating article. My late husband *loved* to watch Jim Cramer, and we both found him quite amusing. I think my husband saw his absurdly crazy antics as a cautionary tale influence *against* temptations.

Intriguing to see that Cramer essentially "blames" his recent more conservative stance on his wife, whose reasoning (as described by her husband) strikes me as eminently sensible.

I now think that maybe my dear departed husband was worried about his own inner temptations to do crazy speculative things and that his need to discuss investment decisions with me was a way to protect himself from doing ill-advised stuff, even though his expertise in finance greatly exceeded mine.
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

etfan wrote: Sat Dec 04, 2021 1:56 am
Robot Monster wrote: Fri Dec 03, 2021 11:33 pm
etfan wrote: Fri Dec 03, 2021 9:04 pm The portfolios of people like him are completely irrelevant to the average people because they're just in a whole different league.
If he's used to spending two or three million a year, losing 90% of his money would result in a significant lifestyle change. Wouldn't he be in the same league with someone worth 10 million, who wants to be able to spend two or three hundred thousand a year?

Maybe I'm missing something.

Is someone with 10 million in a different league than someone with 1 million, and are their portfolios, therefore, completely irrelevant to one another?

Are two people of the same net worth, but with vastly different annual spend %'s, in different leagues?
I guess losing your private Greek island plus a few yachts is as much of a "lifestyle change" as losing your house and ending up in a homeless shelter, as long as the loss percentage is the same! But I still don't find that to be in the same league.

The key idea, I think, is that people invest so they don't have to endure a lifestyle change. If someone's goal is to spend 3% of current savings, they're not going to invest in a way that would give them a good chance of not satisfying that goal, even if losing a significant amount of money doesn't land them in the poor house. A person with $100 million might therefore have a portfolio construction similar to someone with much, much less. I don't think it's coincidental, therefore, that Cramer's portfolio is not so dissimilar from an ordinary portfolio.
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Re: Buying Bonds Because They Actually Work

Post by AlwaysLearningMore »

After the last month's performance for the broad domestic and international equities market, having some bonds in the portfolio to dampen portfolio volatility might help some investors 'stay the course.'

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Re: Buying Bonds Because They Actually Work

Post by lws »

If we buy bonds for the wrong reasons, many of us will be displeased.
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

willthrill81 wrote: Fri Dec 03, 2021 9:21 pm
Mountain Doc wrote: Fri Dec 03, 2021 8:59 pm
willthrill81 wrote: Fri Dec 03, 2021 7:48 pm
peskypesky wrote: Fri Dec 03, 2021 7:23 pm
willthrill81 wrote: Fri Dec 03, 2021 7:15 pm

I'm not sure why you think that. Even the anti-gold folks generally believe that gold's expected real return over the very long-term is 0%. That's better than bonds these days at least. And over the last 20+ years, gold has outperformed stocks and bonds, so the theory of 0% returns may not be valid.
I personally don't know if that's true..but here's the 20-year chart of gold:
https://goldprice.org/gold-price-charts ... -per-ounce
It's true.
It's probably worth noting this is not true for the last 5, 10, 15, 25, 30, or 35 years. Looking only at 20 might make gold seem a little better than it actually is :happy
Very true. When stocks were on a long tear in the 80s and 90s, gold's performance was abysmal. Over the last decade, gold's returns have been similar to that of bonds. But when stocks had a 'lost decade' in the 2000s, gold soared like a kite. In some situations, including retirement, that can be a very good thing.

YMMV.
Gold prices had been depressed by sovereign govts unloading some of their gold reserves. Prices took off when the sovereign selling stopped. This had little to do with stocks as far as I know, but it is fair to say that it was an independent driver of return for gold. The problem I have with gold is that with no source of income, there is no fundamental driver of value. It is all driven by supply and demand.
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Re: Buying Bonds Because They Actually Work

Post by mikejuss »

Amen, OP. I'm weary of the bond haters on this board.
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Re: Buying Bonds Because They Actually Work

Post by novolog »

mikejuss wrote: Sat Dec 04, 2021 10:41 pm Amen, OP. I'm weary of the bond haters on this board.
?
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Re: Buying Bonds Because They Actually Work

Post by Booglie »

mikejuss wrote: Sat Dec 04, 2021 10:41 pm Amen, OP. I'm weary of the bond haters on this board.
It's not about loving or hating bonds. Bonds are not pop stars on a popularity contest.
It's about risk and return, and with bonds returning less than inflation (save for an increase in NAV price),
it's a legitimate concern.

Plus, the ever-increasing US debt and political instability poses extra credit risk.
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Re: Buying Bonds Because They Actually Work

Post by Booglie »

Booglie wrote: Fri Dec 03, 2021 7:37 pm
Northern Flicker wrote: Fri Dec 03, 2021 7:22 pm
Booglie wrote: Fri Dec 03, 2021 6:48 pm
willthrill81 wrote: Fri Dec 03, 2021 6:45 pm
Booglie wrote: Fri Dec 03, 2021 6:43 pm

The emergency fund would be exactly the cash portion of your portfolio, or a risk-free asset. It doesn't matter what exactly it is, as long it has good liquidity and risk-free returns (or, at least, extremely low risk).
That sounds good on paper, but empirical studies have shown that cash buckets for short-term spending don't really improve any measurable outcome.
But the key here is not really performance. It's liquidity. If you suddenly a surgery, you'd better have that extra $5,000 to pay for it or else. A life emergency during a crash would absolutely kill your portfolio, even if you're an expert investor. And people tend to need money the most during crashes, because it gets more scarce.
A mix of intermediate treasuries, TIPS and I bonds will provide a good source of liquidity. You don't need to hold cash. A risk parity portfolio of intermediate treasuries and short TIPS (about 1/3 treasuries and 2/3 TIPS) would also be a reasonable emergency fund. Here is a comparison with cash in this year's rising rate outcome so far:

https://www.portfoliovisualizer.com/bac ... ion3_2=100
Notice that, in some brief periods, even that has an ever-so-slightly negative performance. Depending on what age you are, or your needs, that may not be tolerable.

Regardless of how I'm positioned, I always have e.g, 1% of my current portfolio for immediate expenses (paying utilities, buying groceries). That's money I absolutely need to have by the end of the month.

Of course, if inflation gets really, REALLY bad, that won't be an option. But hopefully, we are far away from that scenario (yet?).
Hi, everyone,
this message has been edited due to political content, which I understand.

However, the reference about me thinking bonds have an increased credit risk has also been removed, which I find intrusive and don't agree with.
So, I just want to make it clear the edit message doesn't fully reflect my positioning.

Have a good day.
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

Just want to make sure something is clear.

BlackRock wasn't saying dump bonds. They were suggesting an underweight nominal government bonds, complimented with an overweight on TIPS.

They thought nominal government bonds with "yields near lower bounds" would have "diminished ability to act as portfolio ballasts". Apparently, they realize they were wrong about this:
The firm has been boosting exposure to government bonds because they’re “actually working” to counter market turmoil, according to Rupert Harrison, portfolio manager for multi-asset strategies.
Despite this, those who followed their recommendation aren't exactly crying about it.

Returns Jan 2021 - Nov 2021
Classic 60/40 -- 12.03%
TIPS-Heavy 60/40 -- 14.15%

Their Stdev's were about equal, 7.23% vs 7.18%.
link
Last edited by Robot Monster on Sun Dec 05, 2021 5:20 pm, edited 1 time in total.
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

Booglie wrote: Sun Dec 05, 2021 7:20 am
mikejuss wrote: Sat Dec 04, 2021 10:41 pm Amen, OP. I'm weary of the bond haters on this board.
It's not about loving or hating bonds. Bonds are not pop stars on a popularity contest.
It's about risk and return, and with bonds returning less than inflation (save for an increase in NAV price),
it's a legitimate concern.

Plus, the ever-increasing US debt and political instability poses extra credit risk.
Portfolio risk and return should be your concern.
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Re: Buying Bonds Because They Actually Work

Post by Munir »

Robot Monster wrote: Fri Dec 03, 2021 3:50 pm
Booglie wrote: Fri Dec 03, 2021 3:35 pm Currently, your only surefire way to avoid volatility is to reduce positions (in this case, to cash). Unsurprisingly, a 50% SPY / 50% cash would reduce the volatlity by 50% (duh).
Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")

He did say, in the same interview, however, that he loves 60/40, that it's a terrific idea. (Though, apparently, not for him.)
My modified Cramer asset allocation (!!) is 40% Total Stock Market Index (VTSAX) and 60% cash. Never thought I'll be here but in my particular circumstances (short-time horizon), it sounds reasonable. Moreover, I think the potential losses due to inflation are not as worrisome as those of a possible crash. I don't expect to make money with my portfolio but just how to best decrease possible future losses.
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

Munir wrote: Sun Dec 05, 2021 4:52 pm
Robot Monster wrote: Fri Dec 03, 2021 3:50 pm
Booglie wrote: Fri Dec 03, 2021 3:35 pm Currently, your only surefire way to avoid volatility is to reduce positions (in this case, to cash). Unsurprisingly, a 50% SPY / 50% cash would reduce the volatlity by 50% (duh).
Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")

He did say, in the same interview, however, that he loves 60/40, that it's a terrific idea. (Though, apparently, not for him.)
My modified Cramer asset allocation (!!) is 40% Total Stock Market Index (VTSAX) and 60% cash. Never thought I'll be here but in my particular circumstances (short-time horizon), it sounds reasonable. Moreover, I think the potential losses due to inflation are not as worrisome as those of a possible crash. I don't expect to make money with my portfolio but just how to best decrease possible future losses.
I have about 25% cash. If the Fed starts hiking in response to inflation, I'll be happy to have cash. If they don't, I'll be happy to have TIPS (50%) and stocks (25%). That's my thinking, at least; unsure if I'm making the right call.
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Re: Buying Bonds Because They Actually Work

Post by Munir »

Robot Monster wrote: Sun Dec 05, 2021 5:25 pm
Munir wrote: Sun Dec 05, 2021 4:52 pm
Robot Monster wrote: Fri Dec 03, 2021 3:50 pm
Booglie wrote: Fri Dec 03, 2021 3:35 pm Currently, your only surefire way to avoid volatility is to reduce positions (in this case, to cash). Unsurprisingly, a 50% SPY / 50% cash would reduce the volatlity by 50% (duh).
Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")

He did say, in the same interview, however, that he loves 60/40, that it's a terrific idea. (Though, apparently, not for him.)
My modified Cramer asset allocation (!!) is 40% Total Stock Market Index (VTSAX) and 60% cash. Never thought I'll be here but in my particular circumstances (short-time horizon), it sounds reasonable. Moreover, I think the potential losses due to inflation are not as worrisome as those of a possible crash. I don't expect to make money with my portfolio but just how to best decrease possible future losses.
I have about 25% cash. If the Fed starts hiking in response to inflation, I'll be happy to have cash. If they don't, I'll be happy to have TIPS (50%) and stocks (25%). That's my thinking, at least; unsure if I'm making the right call.
I like your AA. If I ever get a better understanding of TIPS, I would consider a similar AA. Are your TIPS holdings in the form a mutual fund or individual units?
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

Munir wrote: Sun Dec 05, 2021 5:39 pm
Robot Monster wrote: Sun Dec 05, 2021 5:25 pm
Munir wrote: Sun Dec 05, 2021 4:52 pm
Robot Monster wrote: Fri Dec 03, 2021 3:50 pm
Booglie wrote: Fri Dec 03, 2021 3:35 pm Currently, your only surefire way to avoid volatility is to reduce positions (in this case, to cash). Unsurprisingly, a 50% SPY / 50% cash would reduce the volatlity by 50% (duh).
Jim Cramer is half cash. He revealed that in a recent interview with AARP. link (The rest of his portfolio is "40 percent in U.S. stock index funds, 5 percent in international, and 5 percent split between gold and cryptocurrency.")

He did say, in the same interview, however, that he loves 60/40, that it's a terrific idea. (Though, apparently, not for him.)
My modified Cramer asset allocation (!!) is 40% Total Stock Market Index (VTSAX) and 60% cash. Never thought I'll be here but in my particular circumstances (short-time horizon), it sounds reasonable. Moreover, I think the potential losses due to inflation are not as worrisome as those of a possible crash. I don't expect to make money with my portfolio but just how to best decrease possible future losses.
I have about 25% cash. If the Fed starts hiking in response to inflation, I'll be happy to have cash. If they don't, I'll be happy to have TIPS (50%) and stocks (25%). That's my thinking, at least; unsure if I'm making the right call.
I like your AA. If I ever get a better understanding of TIPS, I would consider a similar AA. Are your TIPS holdings in the form a mutual fund or individual units?
I have my TIPS both individually (maturing in 4, 9, 23, 29, 30 years, bought both at auction, and on the secondary market) and in Vanguard's VAIPX. It's admittedly a bit haphazard. There's tax differences between the two that makes the fund preferable, but, obviously, more duration flexibility with individual, and no fund expense ratio.
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Re: Buying Bonds Because They Actually Work

Post by BitTooAggressive »

Booglie wrote: Sun Dec 05, 2021 7:20 am
mikejuss wrote: Sat Dec 04, 2021 10:41 pm Amen, OP. I'm weary of the bond haters on this board.
It's not about loving or hating bonds. Bonds are not pop stars on a popularity contest.
It's about risk and return, and with bonds returning less than inflation (save for an increase in NAV price),
it's a legitimate concern.

Plus, the ever-increasing US debt and political instability poses extra credit risk.
Yeah not sure why some seem to ignore that.
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

Robot Monster wrote: Sun Dec 05, 2021 5:25 pm I have about 25% cash. If the Fed starts hiking in response to inflation, I'll be happy to have cash. If they don't, I'll be happy to have TIPS (50%) and stocks (25%). That's my thinking, at least; unsure if I'm making the right call.
I'd have a really hard time seeing the buying power of my cash drop 6% in a single year and with no prospect of the situation substantially improving. Cash in the form of T-bills hasn't had a positive real return since the GFC and may not for a long time to come.
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Re: Buying Bonds Because They Actually Work

Post by abc132 »

I am a buyer of fixed income right now as part of preparing for retirement within the next 5 years. Bonds are the best single diversifier and diversification is extremely important during withdrawals. Feel free to add factors, gold, whatever else you want to your portfolio but avoiding the best diversifier out there (bonds) carries big risks. I only care what my portfolio does and that makes bonds my second most important investment asset.

I think the dislike for assets that underperform is entirely behavioral error.

I also think that always preparing for the last battle is a poor investment strategy.
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Re: Buying Bonds Because They Actually Work

Post by mikejuss »

abc132 wrote: Sun Dec 05, 2021 9:09 pmI think the dislike for assets that underperform is entirely behavioral error.
Beautifully said.
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

willthrill81 wrote: Sun Dec 05, 2021 7:00 pm
Robot Monster wrote: Sun Dec 05, 2021 5:25 pm I have about 25% cash. If the Fed starts hiking in response to inflation, I'll be happy to have cash. If they don't, I'll be happy to have TIPS (50%) and stocks (25%). That's my thinking, at least; unsure if I'm making the right call.
I'd have a really hard time seeing the buying power of my cash drop 6% in a single year and with no prospect of the situation substantially improving. Cash in the form of T-bills hasn't had a positive real return since the GFC and may not for a long time to come.
I take solace in two things that have helped me endure Nightmare on Cash Street.

1. Total Bond has been even worse this year.

Inflation adjusted return from Jan 2021 - Nov 2021
Cash -5.79%
BND -7.29%
link

2. My portfolio, as currently constructed, before taxes, stayed even with inflation. With taxes, I'm behind inflation, and I don't know exactly what that comes out to, but even if my portfolio had to permanently endure -2% I'd be very, very okay.

Not saying I'm making the right call on having so much cash. Cash's big appeal is that it dampens down the volatility of my portfolio. Also of appeal: it stands ready to be deployed into TIPS/stocks in case things turn south. (As I understand it, TIPS are illiquid and not the best for rebalancing out of into stocks during a downturn.)
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

Cash vs Bonds: portfolio returns since the global financial crisis.

https://www.portfoliovisualizer.com/bac ... tion3_2=40
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Re: Buying Bonds Because They Actually Work

Post by Robot Monster »

Northern Flicker wrote: Mon Dec 06, 2021 10:02 am Cash vs Bonds: portfolio returns since the global financial crisis.

https://www.portfoliovisualizer.com/bac ... tion3_2=40
My concern is more with the volatility. I find it interesting that a 60/40 with cash was actually more volatile in than period than a 60/40 with bonds!

Stdev for that time period, Jan 2010 - Nov 2021:
60/40 Stocks/Bonds -- 8.05%
60/40 Stocks/Cash -- 8.62%

For my own portfolio, however, it was a different story. I couldn't get my precise portfolio in that time period and because I can't input individual TIPS, but my portfolio with cash (5.16% stdev) was less volatile in that period than with bonds (5.43% stdev).
link

I'm unsure how predictive this is going forward.
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Re: Buying Bonds Because They Actually Work

Post by Northern Flicker »

TIPS are more volatile than nominal treasuries, and have a somewhat higher correlation with equities.

https://www.portfoliovisualizer.com/bac ... tion4_3=40
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Re: Buying Bonds Because They Actually Work

Post by willthrill81 »

Robot Monster wrote: Mon Dec 06, 2021 9:28 am
willthrill81 wrote: Sun Dec 05, 2021 7:00 pm
Robot Monster wrote: Sun Dec 05, 2021 5:25 pm I have about 25% cash. If the Fed starts hiking in response to inflation, I'll be happy to have cash. If they don't, I'll be happy to have TIPS (50%) and stocks (25%). That's my thinking, at least; unsure if I'm making the right call.
I'd have a really hard time seeing the buying power of my cash drop 6% in a single year and with no prospect of the situation substantially improving. Cash in the form of T-bills hasn't had a positive real return since the GFC and may not for a long time to come.
I take solace in two things that have helped me endure Nightmare on Cash Street.

1. Total Bond has been even worse this year.

Inflation adjusted return from Jan 2021 - Nov 2021
Cash -5.79%
BND -7.29%
link

2. My portfolio, as currently constructed, before taxes, stayed even with inflation. With taxes, I'm behind inflation, and I don't know exactly what that comes out to, but even if my portfolio had to permanently endure -2% I'd be very, very okay.

Not saying I'm making the right call on having so much cash. Cash's big appeal is that it dampens down the volatility of my portfolio. Also of appeal: it stands ready to be deployed into TIPS/stocks in case things turn south. (As I understand it, TIPS are illiquid and not the best for rebalancing out of into stocks during a downturn.)
But BND has returned significantly more than cash over even the last decade, for instance, with about a 2.75% higher return. Making such decisions on the basis of less than a single year's performance is problematic.

I agree that portfolio performance is more important than the performance of a portfolio's individual components, but that doesn't mean, as a hyperbolic example, that it's a good idea to light one's cigars with $100 bills just because your portfolio as a whole is doing well.
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