First 20% of bonds in long-term Treasuries

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willthrill81
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Re: First 20% of bonds in long-term Treasuries

Post by willthrill81 » Sat Aug 10, 2019 4:23 pm

oldzey wrote:
Sat Aug 10, 2019 4:19 pm
Fortunately, I have access to TIAA Traditional, which I use for my entire fixed income allocation (20% of my portfolio).
The liquid version of TIAA Trad. is still very appealing, but the 'illiquid' version I have access to pays the same 3%, so there's very little reason to own it instead other than the possibility of higher rates in the future due to the 'vintage' issue.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Doc
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Re: First 20% of bonds in long-term Treasuries

Post by Doc » Sat Aug 10, 2019 4:27 pm

willthrill81 wrote:
Sat Aug 10, 2019 2:43 pm
Doc wrote:
Sat Aug 10, 2019 2:38 pm
Long Treasuries are possibly going to be inversely correlated to equities during a stock market crash.
Fixed. :wink:
Long Treasuries are probably going to be inversely correlated to equities during a stock market crash.
:P
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: First 20% of bonds in long-term Treasuries

Post by Doc » Sat Aug 10, 2019 4:44 pm

welderwannabe wrote:
Sat Aug 10, 2019 3:42 pm
Doc wrote:
Sat Aug 10, 2019 2:38 pm
Personally our portfolio is 50:50 with maybe 35% of the total portfolio in Treasuries in actual bills/notes or as Treasury funds. But given our age I no longer use long Treasuries at all and given the current yield curve there is no longer even much intermediate term left.
What the other 15% of your fixed income portfolio in?
Short and intermediate investment grade corporates. (We also have some 12% of our FI portfolio in Pimco Total Return Fund PTTRX which I treat as intermediate term investment grade for want of any real data supplied by Pimco. :annoyed )

For clarification: It's 15% of my total portfolio or 30% of the FI part since I'm 50:50.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: First 20% of bonds in long-term Treasuries

Post by welderwannabe » Sat Aug 10, 2019 5:09 pm

Doc wrote:
Sat Aug 10, 2019 4:44 pm
Short and intermediate investment grade corporates. (We also have some 12% of our FI portfolio in Pimco Total Return Fund PTTRX which I treat as intermediate term investment grade for want of any real data supplied by Pimco. :annoyed )

For clarification: It's 15% of my total portfolio or 30% of the FI part since I'm 50:50.
Thanks for sharing. Im 50% intermediate treasuries, 50% short corporates in tax deferred.

My taxable is an entirely different story as I view that money as having a shorter time horizon for me. Yes, I know its mental accounting. Its how I like it.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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Re: First 20% of bonds in long-term Treasuries

Post by ThrustVectoring » Tue Aug 13, 2019 2:22 pm

grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.

Pretty much everything else I can think of ends up being inflation-indexed in some way. Taxes on planned Roth conversions (tax brackets are inflation-indexed), living expenses, property taxes, and so much more. People just don't get into too many personal contracts to pay out a fixed amount of dollars 20+ years in the future.
Current portfolio: 60% VTI / 40% VXUS

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Re: First 20% of bonds in long-term Treasuries

Post by grok87 » Tue Aug 13, 2019 7:12 pm

ThrustVectoring wrote:
Tue Aug 13, 2019 2:22 pm
grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.

Pretty much everything else I can think of ends up being inflation-indexed in some way. Taxes on planned Roth conversions (tax brackets are inflation-indexed), living expenses, property taxes, and so much more. People just don't get into too many personal contracts to pay out a fixed amount of dollars 20+ years in the future.
agree.
RIP Mr. Bogle.

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Re: First 20% of bonds in long-term Treasuries

Post by willthrill81 » Tue Aug 13, 2019 10:24 pm

ThrustVectoring wrote:
Tue Aug 13, 2019 2:22 pm
grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.
Despite being very aggressive with our investments, we've been aggressively paying down our mortgage for several years and hope to pay it off next spring. Assuming 12% taxes (estimated marginal tax bracket in retirement), doing so has provided us with a higher return than even long-term Treasuries over the same period. But the real reasons we made the choice to do so were (1) to improve our cash flow once the mortgage is gone, which is even more important to us now than back then and (2) because it really got my wife on board.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: First 20% of bonds in long-term Treasuries

Post by ThrustVectoring » Wed Aug 14, 2019 3:49 am

willthrill81 wrote:
Tue Aug 13, 2019 10:24 pm
ThrustVectoring wrote:
Tue Aug 13, 2019 2:22 pm
grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.
Despite being very aggressive with our investments, we've been aggressively paying down our mortgage for several years and hope to pay it off next spring. Assuming 12% taxes (estimated marginal tax bracket in retirement), doing so has provided us with a higher return than even long-term Treasuries over the same period. But the real reasons we made the choice to do so were (1) to improve our cash flow once the mortgage is gone, which is even more important to us now than back then and (2) because it really got my wife on board.
Of course paying down the mortgage will have a higher return than buying treasuries - you have to pay for the embedded call option somehow, and the interest rate is the only variable at play.

The downside to paying off the mortgage early is that if rates fall while you have a mortgage plus long term treasuries, you get the gains in the treasuries and can refinance the mortgage to the new lower rate. But if you aren't trying anything fancy then that really doesn't matter much at all.
Current portfolio: 60% VTI / 40% VXUS

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Re: First 20% of bonds in long-term Treasuries

Post by grok87 » Wed Aug 14, 2019 12:14 pm

ThrustVectoring wrote:
Wed Aug 14, 2019 3:49 am
willthrill81 wrote:
Tue Aug 13, 2019 10:24 pm
ThrustVectoring wrote:
Tue Aug 13, 2019 2:22 pm
grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.
Despite being very aggressive with our investments, we've been aggressively paying down our mortgage for several years and hope to pay it off next spring. Assuming 12% taxes (estimated marginal tax bracket in retirement), doing so has provided us with a higher return than even long-term Treasuries over the same period. But the real reasons we made the choice to do so were (1) to improve our cash flow once the mortgage is gone, which is even more important to us now than back then and (2) because it really got my wife on board.
Of course paying down the mortgage will have a higher return than buying treasuries - you have to pay for the embedded call option somehow, and the interest rate is the only variable at play.

The downside to paying off the mortgage early is that if rates fall while you have a mortgage plus long term treasuries, you get the gains in the treasuries and can refinance the mortgage to the new lower rate. But if you aren't trying anything fancy then that really doesn't matter much at all.
Right but then you have to pay capital gains tax on the treasuries
RIP Mr. Bogle.

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Re: First 20% of bonds in long-term Treasuries

Post by willthrill81 » Wed Aug 14, 2019 12:20 pm

grok87 wrote:
Wed Aug 14, 2019 12:14 pm
ThrustVectoring wrote:
Wed Aug 14, 2019 3:49 am
willthrill81 wrote:
Tue Aug 13, 2019 10:24 pm
ThrustVectoring wrote:
Tue Aug 13, 2019 2:22 pm
grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.
Despite being very aggressive with our investments, we've been aggressively paying down our mortgage for several years and hope to pay it off next spring. Assuming 12% taxes (estimated marginal tax bracket in retirement), doing so has provided us with a higher return than even long-term Treasuries over the same period. But the real reasons we made the choice to do so were (1) to improve our cash flow once the mortgage is gone, which is even more important to us now than back then and (2) because it really got my wife on board.
Of course paying down the mortgage will have a higher return than buying treasuries - you have to pay for the embedded call option somehow, and the interest rate is the only variable at play.

The downside to paying off the mortgage early is that if rates fall while you have a mortgage plus long term treasuries, you get the gains in the treasuries and can refinance the mortgage to the new lower rate. But if you aren't trying anything fancy then that really doesn't matter much at all.
Right but then you have to pay capital gains tax on the treasuries
Or potentially a significantly higher marginal tax rate if pulled from tax-deferred accounts. Even though our mortgage rate is only 3.375%, assuming 12% taxes on bond returns, paying down our mortgage has turned out to be significantly better than bonds of any maturity over the same period.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: First 20% of bonds in long-term Treasuries

Post by abuss368 » Wed Aug 14, 2019 12:26 pm

grok87 wrote:
Wed Aug 14, 2019 12:14 pm
ThrustVectoring wrote:
Wed Aug 14, 2019 3:49 am
willthrill81 wrote:
Tue Aug 13, 2019 10:24 pm
ThrustVectoring wrote:
Tue Aug 13, 2019 2:22 pm
grok87 wrote:
Thu Aug 08, 2019 4:39 am
the only role i would see for long term nominal treasuries is liability matching. i.e. if one somehow had long term nominal liabilities (a fixed rate mortgage?) or spending needs (hard to think of what that might be?)
Fixed rate mortgages tend to be above long-term bond rates, so typically you're better off paying down the mortgage. It's complicated though, since there's an embedded call option in the mortgage to close out your short bond position at par, so if rates have gone up you may be better off leaving that option open and buying long-term treasuries instead. It's complicated though, so overall I think it's not at all necessary to do - probably you just want to pay down the mortgage.
Despite being very aggressive with our investments, we've been aggressively paying down our mortgage for several years and hope to pay it off next spring. Assuming 12% taxes (estimated marginal tax bracket in retirement), doing so has provided us with a higher return than even long-term Treasuries over the same period. But the real reasons we made the choice to do so were (1) to improve our cash flow once the mortgage is gone, which is even more important to us now than back then and (2) because it really got my wife on board.
Of course paying down the mortgage will have a higher return than buying treasuries - you have to pay for the embedded call option somehow, and the interest rate is the only variable at play.

The downside to paying off the mortgage early is that if rates fall while you have a mortgage plus long term treasuries, you get the gains in the treasuries and can refinance the mortgage to the new lower rate. But if you aren't trying anything fancy then that really doesn't matter much at all.
Right but then you have to pay capital gains tax on the treasuries
Good point.
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