It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

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livesoft
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It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by livesoft » Sat Jan 13, 2018 8:37 am

I thought you all would like to see how to outperform the Vanguard Total Bond Index Fund for 2018 with basically the same risk and absolutely Guaranteed!

Morningstar.com reports that VBTLX now has a YTD return of -0.46%.

So all you have to do is buy VBTLX on Tuesday and you will by definition (guaranteed) outperform VBTLX for all of 2018. (I'll take the chance that VBTLX will not go up by 0.46% on Tuesday.)

Simple! Guaranteed!
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jhfenton
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by jhfenton » Sat Jan 13, 2018 8:43 am

On the other hand, my new 401(k) investments yesterday are guaranteed to underperform the funds they're invested in for the year! :oops:

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by livesoft » Sat Jan 13, 2018 8:46 am

For an extra kick I want to point out that the ETF share class BND has a reported -0.66% total return so far for 2018, so that is very helpful.

The Short-term Bond funds VCSH, VSCSX, and SPSB are places to get the money to buy Total Bond Index.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by telemark » Sat Jan 13, 2018 8:50 am

It's all in how you measure... but on Tuesday my plan is to outperform VGSLX.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by livesoft » Sat Jan 13, 2018 8:54 am

^I like it. :)

(Your plan, that is, not VGSLX.)
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by in_reality » Sat Jan 13, 2018 9:08 am

livesoft wrote:
Sat Jan 13, 2018 8:37 am
I thought you all would like to see how to outperform the Vanguard Total Bond Index Fund for 2018 with basically the same risk and absolutely Guaranteed!

Morningstar.com reports that VBTLX now has a YTD return of -0.46%.

So all you have to do is buy VBTLX on Tuesday and you will by definition (guaranteed) outperform VBTLX for all of 2018. (I'll take the chance that VBTLX will not go up by 0.46% on Tuesday.)

Simple! Guaranteed!
Cheeky and cute!

However, nothing is guaranteed!

If VBTLX ends up 2018 at -1.0%, will you really have outperformed?

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telemark
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by telemark » Sat Jan 13, 2018 10:07 am

in_reality wrote:
Sat Jan 13, 2018 9:08 am
Cheeky and cute!

However, nothing is guaranteed!

If VBTLX ends up 2018 at -1.0%, will you really have outperformed?
Most definitely; it's better to lose half a percent than to lose a whole percent. But the broader point is that YTD is a stupid way to measure performance. It starts out really stupid, then by the end of the year it's almost not stupid any more, and then it resets to being really stupid again. Learn not to anchor you must...

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by David Jay » Sat Jan 13, 2018 10:10 am

telemark wrote:
Sat Jan 13, 2018 10:07 am
YTD is a stupid way to measure performance. It starts out really stupid, then by the end of the year it's almost not stupid any more, and then it resets to being really stupid again.
cute...

And yet this thread has over 1700 posts: viewtopic.php?t=145610
Last edited by David Jay on Sat Jan 13, 2018 10:29 am, edited 1 time in total.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by livesoft » Sat Jan 13, 2018 10:16 am

Hey, I'm working on Thaler-esque nudges here.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by MrJones » Sat Jan 13, 2018 2:12 pm

telemark wrote:
Sat Jan 13, 2018 10:07 am
Most definitely; it's better to lose half a percent than to lose a whole percent. But the broader point is that YTD is a stupid way to measure performance. It starts out really stupid, then by the end of the year it's almost not stupid any more, and then it resets to being really stupid again. Learn not to anchor you must...
I'm really still not getting the point here even after reading this. Is this specific to bonds? How/why does YTD go down, then up again in a year?

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by David Jay » Sat Jan 13, 2018 3:15 pm

MrJones wrote:
Sat Jan 13, 2018 2:12 pm
I'm really still not getting the point here even after reading this. Is this specific to bonds? How/why does YTD go down, then up again in a year?
YTD on January 2 is a measure of the performance of the market on ONE day - January 2nd. So if the market is down 10%, YTD is -10%. How useful is this as a measure of performance?

A rolling "past 12 months" is a reasonable measure. YTD approaches "past 12 months" at the end of the year, then resets to a 1 day measurement on January 2, 2019.
Last edited by David Jay on Sat Jan 13, 2018 5:00 pm, edited 1 time in total.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by nisiprius » Sat Jan 13, 2018 4:52 pm

If anyone plays QuizUp... an online, real-time, one-on-one, rapidfire trivia-quiz game... then you know... it's kind of cool playing near the beginning of the year. In the first few hours of the year there are not very many people playing, and it will pop up a cheerful announcement that you are #1 in the world. Gradually over time more people join in, and eventually the serious players start, and you get knocked down to #1 in the U.S., #1 in the state, top ten in the state... and you realize that your 2,168 points, which once made you #1 in the world, are no longer very competitive against players with 152,889 points.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by ruralavalon » Sat Jan 13, 2018 5:44 pm

David Jay wrote:
Sat Jan 13, 2018 10:10 am
telemark wrote:
Sat Jan 13, 2018 10:07 am
YTD is a stupid way to measure performance. It starts out really stupid, then by the end of the year it's almost not stupid any more, and then it resets to being really stupid again.
cute...

And yet this thread has over 1700 posts: viewtopic.php?t=145610
And most of the 1700 stupid :( , except mine :) .

Still it is interesting to see different attitudes toward how to measure portfolio growth or return, attitudes about whether that is important to know, and the differences flowing from asset allocation.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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David Jay
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by David Jay » Sat Jan 13, 2018 5:58 pm

ruralavalon wrote:
Sat Jan 13, 2018 5:44 pm
David Jay wrote:
Sat Jan 13, 2018 10:10 am
telemark wrote:
Sat Jan 13, 2018 10:07 am
YTD is a stupid way to measure performance. It starts out really stupid, then by the end of the year it's almost not stupid any more, and then it resets to being really stupid again.
cute...

And yet this thread has over 1700 posts: viewtopic.php?t=145610
And most of the 1700 stupid :( , except mine :) .

Still it is interesting to see different attitudes toward how to measure portfolio growth or return, attitudes about whether that is important to know, and the differences flowing from asset allocation.
When I checked, it was 1729, so you may consider yours one of the 29 if it helps your self image. We're all here for ya, man.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by GoldenFinch » Sat Jan 13, 2018 7:33 pm

livesoft wrote:
Sat Jan 13, 2018 10:16 am
Hey, I'm working on Thaler-esque nudges here.
Thank you. :|

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by livesoft » Sat Jan 13, 2018 7:50 pm

GoldenFinch wrote:
Sat Jan 13, 2018 7:33 pm
livesoft wrote:
Sat Jan 13, 2018 10:16 am
Hey, I'm working on Thaler-esque nudges here.
Thank you. :|
Even better: For folks who waited to rebalance from equities to bonds since the beginning of the year their money they are moving has gained 4+% in 2018 and will end up about 0.5% better than the bond fund it is going into, so that will probably be like having twice the 2018 return of money already in the bond fund.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by triceratop » Sat Jan 13, 2018 8:46 pm

You can outperform Vanguard Intermediate-term Treasury ETF by 0.63% as of the close on Friday. For a treasury fund that's even better given the lower yield!
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by telemark » Sat Jan 13, 2018 9:22 pm

David Jay wrote:
Sat Jan 13, 2018 3:15 pm
MrJones wrote:
Sat Jan 13, 2018 2:12 pm
I'm really still not getting the point here even after reading this. Is this specific to bonds? How/why does YTD go down, then up again in a year?
YTD on January 2 is a measure of the performance of the market on ONE day - January 2nd. So if the market is down 10%, YTD is -10%. How useful is this as a measure of performance?

A rolling "past 12 months" is a reasonable measure. YTD approaches "past 12 months" at the end of the year, then resets to a 1 day measurement on January 2, 2019.
Also, YTD anchors your thinking to an arbitrary date, the beginning of the year in a popular calendar. Anchoring is a cognitive bias that has been thoroughly described elsewhere.

And understanding a cognitive bias doesn't mean you can't be susceptible to it. If I'm not in that other thread, and I honestly don't remember, it's probably because I was too busy to read through it.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by David Jay » Sat Jan 13, 2018 9:39 pm

And in a parallel thread:

Vanguard only provides YTD increase on the website, not YTD percentage: viewtopic.php?p=3717792#p3717792 (with some gnashing of teeth by posters)
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by inbox788 » Sat Jan 13, 2018 11:41 pm

You could say we have experienced a mini crash in bonds. Well, more like a tiny crash; make that a minuscule crash. Anyway, I'm buying more bonds simply because I'm getting older and gliding towards a higher bond portfolio, so a crash is a good thing just like when stock crashes are good for young buyers who are still accumulating. I guess if you're retired and counting on the bond returns now, you might have a case for panicking, or worrying, or maybe enough concern to keep an eye on things, just in case.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by Finridge » Sun Jan 14, 2018 1:26 am

livesoft wrote:
Sat Jan 13, 2018 8:37 am

So all you have to do is buy VBTLX on Tuesday and you will by definition (guaranteed) outperform VBTLX for all of 2018. (I'll take the chance that VBTLX will not go up by 0.46% on Tuesday.)

Simple! Guaranteed!
Of course because there is a chance that VBTLX will have gone up by 0.46% by the time you will have bought in at the market close price, it is NOT guaranteed! :D

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by livesoft » Sun Jan 14, 2018 6:57 am

Finridge wrote:
Sun Jan 14, 2018 1:26 am
Of course because there is a chance that VBTLX will have gone up by 0.46% by the time you will have bought in at the market close price, it is NOT guaranteed! :D
We better all switch to ETFs then because mutual funds can screw us over with their their unpredictable prices.
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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by MrJones » Mon Jan 15, 2018 1:15 pm

David Jay wrote:
Sat Jan 13, 2018 3:15 pm
MrJones wrote:
Sat Jan 13, 2018 2:12 pm
I'm really still not getting the point here even after reading this. Is this specific to bonds? How/why does YTD go down, then up again in a year?
YTD on January 2 is a measure of the performance of the market on ONE day - January 2nd. So if the market is down 10%, YTD is -10%. How useful is this as a measure of performance?

A rolling "past 12 months" is a reasonable measure. YTD approaches "past 12 months" at the end of the year, then resets to a 1 day measurement on January 2, 2019.
Ah I understand now, thanks for explaining!

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by columbia » Mon Jan 15, 2018 1:19 pm

I’ts trivial to perform it with no risk: TIAA Traditional ;)

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by Swelfie » Mon Jan 15, 2018 2:50 pm

inbox788 wrote:
Sat Jan 13, 2018 11:41 pm
You could say we have experienced a mini crash in bonds. Well, more like a tiny crash; make that a minuscule crash. Anyway, I'm buying more bonds simply because I'm getting older and gliding towards a higher bond portfolio, so a crash is a good thing just like when stock crashes are good for young buyers who are still accumulating. I guess if you're retired and counting on the bond returns now, you might have a case for panicking, or worrying, or maybe enough concern to keep an eye on things, just in case.
As someone who levers their bonds in a risk parity portfolio, bonds have been brutal since September. I'm taking a serious beating at the 2 year point on the yield curve. Happily, equities are being nice and cushioning the blow.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by inbox788 » Mon Jan 15, 2018 3:46 pm

Swelfie wrote:
Mon Jan 15, 2018 2:50 pm
As someone who levers their bonds in a risk parity portfolio, bonds have been brutal since September. I'm taking a serious beating at the 2 year point on the yield curve. Happily, equities are being nice and cushioning the blow.
I had to look up "levered bonds in risk parity portfolio". Interesting idea. I've simply been taking the other approach, "risk of concentration".
https://www.aqr.com/cliffs-perspective/ ... ight-lever

How do you implement this levered bond strategy cost efficiently? What funds do you use? How much leverage do you use and how do you figure that out?

https://finance.google.com/finance?chdn ... 2Ab15oygBA
BND dropped from 82.67 to 80.03 since Sept 7, or down about 3.2%. In the same period the yield on the 2 year treasury went from 1.27 o 1.98. But Vanguard Short-Term Bond VBISX barely budged.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by Swelfie » Tue Jan 16, 2018 10:22 pm

inbox788 wrote:
Mon Jan 15, 2018 3:46 pm
Swelfie wrote:
Mon Jan 15, 2018 2:50 pm
As someone who levers their bonds in a risk parity portfolio, bonds have been brutal since September. I'm taking a serious beating at the 2 year point on the yield curve. Happily, equities are being nice and cushioning the blow.
I had to look up "levered bonds in risk parity portfolio". Interesting idea. I've simply been taking the other approach, "risk of concentration".
https://www.aqr.com/cliffs-perspective/ ... ight-lever

How do you implement this levered bond strategy cost efficiently? What funds do you use? How much leverage do you use and how do you figure that out?

https://finance.google.com/finance?chdn ... 2Ab15oygBA
BND dropped from 82.67 to 80.03 since Sept 7, or down about 3.2%. In the same period the yield on the 2 year treasury went from 1.27 o 1.98. But Vanguard Short-Term Bond VBISX barely budged.
I use ZT (US 2 year treasury futures) mainly with some GE (eurodollar futures) and EM (very short term eurodollar futures) to pick up some very short term. I lever these around 10x. I supplement with unlevered BND and TLT to get the longer term end of the curve. The TLT in particular needs no leverage as it's nearly as volatile as equities. I've got TIPS in the mix too.

So levering about 10% equities, 85% short term high quality and 5% long term gives me pretty good parity across the spectrum which I lever to a level where the volatility is similar to a 100% equity portfolio. The leverage adds some cost which I justify as being countered by the increased diversification. I've got some other slice and dice alts in there too, but I don't risk parity those. Rather, I add them in proportional to both their volatility tempered by my lesser confidence in their long term potential (managed futures for instance has a smaller place in my portfolio than a strict risk parity would place it. Currency carry trade even less, and thankfully so so far).

My portfolio has been in place in this form a bit more than a year and has done reasonably well, but has severely underperformed a 60/40 standard because of the screaming hot equity bull run we've had. It hasn't faced a real downturn in anything yet for a good stress test though. I would expect in a severe equity downturn to shine by likely continuing to just carry on with my mediocre but pretty constant growth.

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Re: It's trivial to outperform Vanguard Total Bond Index for 2018 with same risk!

Post by inbox788 » Wed Jan 17, 2018 3:40 am

Swelfie wrote:
Tue Jan 16, 2018 10:22 pm
I use ZT (US 2 year treasury futures) mainly with some GE (eurodollar futures) and EM (very short term eurodollar futures) to pick up some very short term. I lever these around 10x. I supplement with unlevered BND and TLT to get the longer term end of the curve. The TLT in particular needs no leverage as it's nearly as volatile as equities. I've got TIPS in the mix too.

So levering about 10% equities, 85% short term high quality and 5% long term gives me pretty good parity across the spectrum which I lever to a level where the volatility is similar to a 100% equity portfolio. The leverage adds some cost which I justify as being countered by the increased diversification. I've got some other slice and dice alts in there too, but I don't risk parity those. Rather, I add them in proportional to both their volatility tempered by my lesser confidence in their long term potential (managed futures for instance has a smaller place in my portfolio than a strict risk parity would place it. Currency carry trade even less, and thankfully so so far).

My portfolio has been in place in this form a bit more than a year and has done reasonably well, but has severely underperformed a 60/40 standard because of the screaming hot equity bull run we've had. It hasn't faced a real downturn in anything yet for a good stress test though. I would expect in a severe equity downturn to shine by likely continuing to just carry on with my mediocre but pretty constant growth.
Thanks for sharing. I'm going to have to read up on this and get back to it. It's not something that's sinking in right away, and I'm confident and content with my goal of simple 3 fund portfolio, so it's not something I'd rush in to anyway. Still, it's a very interesting concept and I hope it works out.

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