Our FI Allocation: Help

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galeno
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Our FI Allocation: Help

Post by galeno » Wed Jul 22, 2020 11:08 am

We live in USD denominated Costa Rica. Which would be a better FI allocation?

90% USD USA Bonds + 10% Cash

or

90% USD Hedged World Bonds + 10% Cash


https://blog.pimco.com/en/2018/08/the-g ... st%20rates.

"Essentially, investors are getting paid to hedge the currency risk back to the US dollar. Other potential benefits for those who invest internationally and hedge their U.S. currency exposure include improved diversification and defense against rising U.S. interest rates."
Last edited by galeno on Wed Jul 22, 2020 11:28 am, edited 1 time in total.
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bloom2708
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Re: Our FI Allocation: Help

Post by bloom2708 » Wed Jul 22, 2020 11:23 am

0/100 does not hold up well for FI. I vote neither.

Unless you have 50x or 100x spending. Then any plan works. But, I still would not do 0/100.

I would keep 30% stocks. I am not sure about hedged vs. USD bonds.

Bond rates are very low. They can stay the same. Go even lower or negative or rise. Nobody knows. Rising rates will be tough on bond funds. Steady rates mean paltry/low interest. Negative rates, well..let's not go there.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

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galeno
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Re: Our FI Allocation: Help

Post by galeno » Wed Jul 22, 2020 11:27 am

We hold a 50/50 port. My question is for the 50% FI allocation. We like our equity allocation.
bloom2708 wrote:
Wed Jul 22, 2020 11:23 am
0/100 does not hold up well for FI. I vote neither.

Unless you have 50x or 100x spending. Then any plan works. But, I still would not do 0/100.

I would keep 30% stocks. I am not sure about hedged vs. USD bonds.

Bond rates are very low. They can stay the same. Go even lower or negative or rise. Nobody knows. Rising rates will be tough on bond funds. Steady rates mean paltry/low interest. Negative rates, well..let's not go there.
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bloom2708
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Re: Our FI Allocation: Help

Post by bloom2708 » Wed Jul 22, 2020 11:30 am

galeno wrote:
Wed Jul 22, 2020 11:27 am
We hold a 50/50 port. My question is for the 50% FI allocation. We like our equity allocation.
OK. That makes more sense.

Since USD based, I'd stick with USD bonds.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

IcedTea
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Re: Our FI Allocation: Help

Post by IcedTea » Wed Jul 22, 2020 3:32 pm

Great question - following.

On EUR we always hedge world bond funds (i tried to find the wiki that detailed the reasoning...)

I Guess (???) the same would be true for a USD investor in world bonds?
Last edited by IcedTea on Wed Jul 22, 2020 4:20 pm, edited 1 time in total.

Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Wed Jul 22, 2020 3:54 pm

Have you considered unhedged world bonds?
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galeno
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Re: Our FI Allocation: Help

Post by galeno » Wed Jul 22, 2020 5:36 pm

Yes I have considered unhedged world bonds. They have all the disadvantages and none of the advantages of the two choices in the OP.

USD USA Bonds have better yields, shorter durations, and better credit quality vs the world bonds. They are very vulnerable to increases in interest rates and USD devaluation.

USD Hedged World Bonds would somewhat protect against the vulnerablities of the USD USA Bonds. Less volatile vs the unhedged world bonds.

Why would we consider unhedged world bonds? I don't see the logic.
Rosales wrote:
Wed Jul 22, 2020 3:54 pm
Have you considered unhedged world bonds?
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Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Wed Jul 22, 2020 6:24 pm

My understanding is that unhedged world bonds will better protect against USD devaluation than hedged.
Not sure how interest rate changes will affect both, does hedging protect against interest rate change?
galeno wrote:
Wed Jul 22, 2020 5:36 pm

Why would we consider unhedged world bonds? I don't see the logic.
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andrew99999
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Re: Our FI Allocation: Help

Post by andrew99999 » Thu Jul 23, 2020 7:25 am

I believe the carry is nullified by covered interest rate parity and whatever differs will be the luck of currency movements, which is the "may" part of when the article say "Why hedging may pay".

The question of US vs global bonds - if you're referring to government bonds, and if the global government bonds is only developed countries, then in terms of credit risk they don't really have credit risk and just about all of the risk is interest rate risk, which is a systematic risk, therefore there's little need for issuer diversification with government bonds - provided it's from a politically stable, developed country.

Although, one reason why you may prefer international government bonds is that fixed income markets around the world don't all rise and fall at exactly the same time, so (currency hedged) international government bonds would provide some volatility reduction in the bond allocation within your portfolio, which is why that article says "Global bond returns were positive in eight of the past 11 periods of increasing U.S. interest rates (see chart)", because when the US raised their interest rates, other countries did not raise theirs at exactly the same moment.

I suppose if I had to choose one, it would be the global one but I don't think there a whole lot of difference between them.

On the other hand if you are not referring to government bonds only, and are referring to corporate or aggregate bonds, then there is certainly unsystematic risk that needs to be diversified away and I would choose a global bond fund in that case.

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Re: Our FI Allocation: Help

Post by galeno » Thu Jul 23, 2020 8:26 am

Music to my ears.
andrew99999 wrote:
Thu Jul 23, 2020 7:25 am
I believe the carry is nullified by covered interest rate parity and whatever differs will be the luck of currency movements, which is the "may" part of when the article say "Why hedging may pay".

The question of US vs global bonds - if you're referring to government bonds, and if the global government bonds is only developed countries, then in terms of credit risk they don't really have credit risk and just about all of the risk is interest rate risk, which is a systematic risk, therefore there's little need for issuer diversification with government bonds - provided it's from a politically stable, developed country.

Although, one reason why you may prefer international government bonds is that fixed income markets around the world don't all rise and fall at exactly the same time, so (currency hedged) international government bonds would provide some volatility reduction in the bond allocation within your portfolio, which is why that article says "Global bond returns were positive in eight of the past 11 periods of increasing U.S. interest rates (see chart)", because when the US raised their interest rates, other countries did not raise theirs at exactly the same moment.

I suppose if I had to choose one, it would be the global one but I don't think there a whole lot of difference between them.

On the other hand if you are not referring to government bonds only, and are referring to corporate or aggregate bonds, then there is certainly unsystematic risk that needs to be diversified away and I would choose a global bond fund in that case.
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Re: Our FI Allocation: Help

Post by galeno » Thu Jul 23, 2020 9:15 am

Again our 3 FI allocation choices:

1. 50% VDTY + 40% VDCP + 10% CASH.
100% USD USA bonds. YTM = 1.13%. 12 mo yield = 2.15%. DISTRIBUTING.

2. 90% VAGU + 10% CASH
42% USD/USA bonds + 58% Non-USD/non-USA bonds. YTM = 0.90%. 12 mo yield = 0.00%. ACCUMULATING. USD Hedged.

3. 90% AGGG + 10% CASH
43% USD/USA bonds + 57% Non-USD/non-USA bonds. YTM = 0.80%. 12 mo yield = 1.53%. DISTRIBUTING. Non-hedged.

We prefer DISTRIBUTING ETFs. We are retirees. We SPEND cash. We prefer that dividend and interest cash income go into the MMF. This way we avoid the commission and spread costs of getting this cash.

We'd PREFER a DISTRIBUTING USD Hedged World Bond ETF. Does one even exist?

In the meantime I think we'll stay with Choice 1. Or go with Choice 3. IMHO the increased costs of accumulation outweigh the benefits of the USD hedging.

Am I wrong?
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andrew99999
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Re: Our FI Allocation: Help

Post by andrew99999 » Thu Jul 23, 2020 12:03 pm

You can leave out the 12 month yield. It's meaningless. The YTM is what you want going forward.
Just had a look and noticed this fund. It looks to be 11 days old. Does that look suitable?
AGUG

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galeno
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Re: Our FI Allocation: Help

Post by galeno » Thu Jul 23, 2020 4:53 pm

Yes! AGUG is EXACTLY what we're looking for. Thank you.

I always post both yields. The YTM and the 12 month yield. Also called the distibution yield.

Some people like one. Some people like the other. I look at both.
andrew99999 wrote:
Thu Jul 23, 2020 12:03 pm
You can leave out the 12 month yield. It's meaningless. The YTM is what you want going forward.
Just had a look and noticed this fund. It looks to be 11 days old. Does that look suitable?
AGUG
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Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Thu Jul 23, 2020 5:17 pm

Note that AGUG is not listed on LSE (yet?)
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andrew99999
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Re: Our FI Allocation: Help

Post by andrew99999 » Thu Jul 23, 2020 6:38 pm

galeno wrote:
Thu Jul 23, 2020 4:53 pm
I always post both yields. The YTM and the 12 month yield. Also called the distibution yield.

Some people like one. Some people like the other. I look at both.
Can you explain to me the use of 12 month yield?
Last 18 month my country had 5 x 0.25% rate cuts from 1.5% down to 0.25%, so the past 12 month yield shows data that is stale. How does the 12 month yield help?

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Re: Our FI Allocation: Help

Post by galeno » Thu Jul 23, 2020 9:00 pm

Correct. It was formed on 15 July 2020.
Rosales wrote:
Thu Jul 23, 2020 5:17 pm
Note that AGUG is not listed on LSE (yet?)
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galeno
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Re: Our FI Allocation: Help

Post by galeno » Thu Jul 23, 2020 9:04 pm

YTM = the yield you GET

12 mo Yield = the yield you GOT
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Re: Our FI Allocation: Help

Post by galeno » Sat Jul 25, 2020 6:58 am

I'm trying to talk myself into breaking my long time belief that we should use USD bonds since our national currency is linked to the USD.

Until recently the advantages of USD bonds were clear. Better yield. Better credit quality. Better liquidity. Shorter duration. Cheaper ER. No USD hedging costs for derivatives. These advantages are narrowing.

After years of comparing the two I'm thinking it may be time to switch to World Bonds.

Our port holds 45% bonds. 43% of WB are USD bonds. So we're looking at 25% of port being non-USD bonds. They would be hedged to USD.

Our port's yield using USD Bonds is 0.2% more vs using World Bonds. 1.23% vs 1.02%. That's 16% of our port's dividend and interest net cash income. Ouch.

We use 2 ETFs for USD Bonds. We would use only 1 with World Bonds. VDTY/VDCP vs AGUG. I LOVE simplification. No more rebalancing between 2 bond ETFs.

Now only 3 things hold us back. The 0.2% port yield advantage of the USD bonds. My dislike of derivatives for hedging. And my concerns about liquidity.

Am I being "dollar foolish"?
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Re: Our FI Allocation: Help

Post by Maple » Sun Jul 26, 2020 3:30 am

galeno wrote:
Sat Jul 25, 2020 6:58 am
... Now only 3 things hold us back. The 0.2% port yield advantage of the USD bonds ...
Are you certain this "0.2% port yield advantage" is real?? The world bond ETFs hold a plurality of currencies, each of which has a different market implied currency appreciation/depreciation vs the USD over a forward time period. As one example, the current Euro/USD FX Futures rate for JUN 2021 is 1.1717 while the spot price is 1.1656. So, you may lose in currency depreciation what you gain in yield. In fact, simplified theories suggest this will be the case.

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Re: Our FI Allocation: Help

Post by galeno » Mon Jul 27, 2020 6:14 am

@Maple

You're right. It's like trying to do eye surgery with a butter knife.

That 0.2% comes from using the information available from UK Morningstar, Global Vanguard, and Global Ishares web pages.

Our best bet right now is to go from USD / USA Bonds to USD hedged / World Bonds. WB are 40% USD. 10% JPY. 50% the rest.
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Re: Our FI Allocation: Help

Post by Maple » Mon Jul 27, 2020 9:35 am

@galeno,

I agree with you on choosing World Bonds over solely USA Bonds. My preference is the unhedged variety though.

Seems there has been considerable discussion about this topic recently with many preferring a more USA and USD focused bond portfolio, with currency hedging. I see this lack of diversity as unnecessary debtor/currency risk and the hedging as a counter-productive cost. We can agree to disagree.

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Re: Our FI Allocation: Help

Post by galeno » Mon Jul 27, 2020 10:29 am

@Maple

Would you use CAD hedged WB if available?

From what I've read, for USD investors, USD hedged WB had a better yield (2%+) and a lower GSD vs non hedged WB.

We've been investing in financial assets for 35 years. For the first 20 years we didn't own bonds.

For the last 15.5 years we have only owned USD / USA Bonds.

Our NEXT step is USD Hedged / World Bonds.

We're very open minded. If unhedged bonds are better for us (Costa Ricans) than non-hedged bonds we'll change our minds. CRC is tightly linked to the USD.

If we were Canadians spending CAD (a major currency) we would probably use non-hedged also. Unless we could hedge them to CAD.
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Maple
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Re: Our FI Allocation: Help

Post by Maple » Mon Jul 27, 2020 11:51 am

galeno wrote:
Mon Jul 27, 2020 10:29 am
@Maple

Would you use CAD hedged WB if available?

...
Galeno,

No, not currently or for the foreseeable future. AGGG contains ~3% Canadian bonds in CAD and that is my entire Canadian fixed income holding. I travel globally, but even if I lived in Canada, I would want the debtor and currency (unhedged) diversity of a world bond fund. I consider that diversity to be THE HEDGE. It's a philosophical difference from many who hold an alternate opinion.

The US economy and currency have been the strongest and relatively stable for a long time, by many metrics. That may continue, but it may not. IMO, the better hedge is diversification. So, my fixed income allocation currently is mostly AGGG (world bonds unhedged) with some VDTA (USA USD bonds). I have been gradually reducing my 'overweight' USA bond position over years as I became more confident world bonds were better for me.
Last edited by Maple on Mon Jul 27, 2020 8:29 pm, edited 1 time in total.

Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Mon Jul 27, 2020 12:01 pm

Hedging does not protect from devaluation of your chosen main currency, in fact it does the opposite. So what does it protect against then? What's the point of hedging, especially for someone from a country with non-reserve currency?

I agree with Maple.
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Re: Our FI Allocation: Help

Post by galeno » Tue Jul 28, 2020 3:26 am

This is the article that opened our minds to consider global bonds vs 100% USD / USA bonds.

https://www.bogleheads.org/wiki/Developed_market_bonds

Our currency, the CRC, is tightly linked to the USD. My wife and I have been saving in USD since the early 1980s. All I can remember my entire life is the CRC always going down vs the USD.

Read the article and tell me what you think.
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Re: Our FI Allocation: Help

Post by glorat » Tue Jul 28, 2020 9:39 am

galeno wrote:
Tue Jul 28, 2020 3:26 am
This is the article that opened our minds to consider global bonds vs 100% USD / USA bonds.

https://www.bogleheads.org/wiki/Developed_market_bonds

Read the article and tell me what you think.
What points in the article lead you to think that global bonds will have advantages for you over a 100% USD bond portfolio?

Also, it makes a huge difference whether you are considering treasury bond equivalents in the global stage, or investment grade/corporate bonds too.

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Re: Our FI Allocation: Help

Post by galeno » Tue Jul 28, 2020 10:10 am

FI = 30 % US Treas +30% TIPS + 30% Corps + 10% CASH

Advantages: Better yield and credit quality. Lower costs. USD is still the reserve currency. CRC tightly linked to USD.

FI = 80 % WB + 10% EM bonds + 10% CASH

The only advantage of WB vs USA / USD bonds is diversification.

From what I'm seeing and reading it seems like the USD is losing it's shine. Many USA-NRAs prefer unhedged WB.
glorat wrote:
Tue Jul 28, 2020 9:39 am
galeno wrote:
Tue Jul 28, 2020 3:26 am
This is the article that opened our minds to consider global bonds vs 100% USD / USA bonds.

https://www.bogleheads.org/wiki/Developed_market_bonds

Read the article and tell me what you think.
What points in the article lead you to think that global bonds will have advantages for you over a 100% USD bond portfolio?

Also, it makes a huge difference whether you are considering treasury bond equivalents in the global stage, or investment grade/corporate bonds too.
KISS & STC.

Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Tue Jul 28, 2020 3:02 pm

I hope Vanguard launch an unhedged version of VAGU (global bonds fund) soon.
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galeno
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Re: Our FI Allocation: Help

Post by galeno » Tue Jul 28, 2020 7:30 pm

@Rosales

Where do you live? Maybe this could help me decide between hedged vs non hedged.

I'm so curious. What does a 28 y/o FIRE port look like? How do you manage your withdrawsls for living expenses? I consider myself a FIRE expert. Since the early 1990s. And you're a FIRE unicorn.

I completely understand why a Canadian would want to hold UNHEGED World Bonds.

Why do you?
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Maple
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Re: Our FI Allocation: Help

Post by Maple » Tue Jul 28, 2020 9:10 pm

Rosales wrote:
Tue Jul 28, 2020 3:02 pm
I hope Vanguard launch an unhedged version of VAGU (global bonds fund) soon.
Agreed, that would be useful. Alternately, an accumulating version of iShares' unhedged AGGG would be convenient as well.

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Re: Our FI Allocation: Help

Post by White Wolf » Tue Jul 28, 2020 9:14 pm

galeno wrote:
Tue Jul 28, 2020 10:10 am
FI = 30 % US Treas +30% TIPS + 30% Corps + 10% CASH

Advantages: Better yield and credit quality. Lower costs. USD is still the reserve currency. CRC tightly linked to USD.

FI = 80 % WB + 10% EM bonds + 10% CASH

The only advantage of WB vs USA / USD bonds is diversification.

From what I'm seeing and reading it seems like the USD is losing it's shine. Many USA-NRAs prefer unhedged WB.
Doesn't WB include EM bonds too? Another benefit I see is the simplicity.
Rosales wrote:
Tue Jul 28, 2020 3:02 pm
I hope Vanguard launch an unhedged version of VAGU (global bonds fund) soon.
+1

glorat
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Re: Our FI Allocation: Help

Post by glorat » Tue Jul 28, 2020 9:55 pm

galeno wrote:
Tue Jul 28, 2020 10:10 am
Advantages: Better yield and credit quality
That theoretically cannot be a true statement.
galeno wrote:
Tue Jul 28, 2020 10:10 am
The only advantage of WB vs USA / USD bonds is diversification.
Yes, diversification of credit risk specifically
galeno wrote:
Tue Jul 28, 2020 10:10 am
From what I'm seeing and reading it seems like the USD is losing it's shine. Many USA-NRAs prefer unhedged WB.
That's taking a bet of USD vs other currencies.

The purpose of hedging is to reduce volatility. It actually doesn't help or hinder on currency speculation because it is using FX futures to do the hedging. Just ask all the OIL ETF buyers who thought that this trade would rise in value because "everyone knows" that oil prices would rise. Will oil prices did rise... and the ETF holders lost money. The USD hedging doesn't make money if USD strengthens, it makes money if it strengthens more than the market has already priced in.

That being said, as an international nomad with no specific ties, I'm happy to use unhedged AGGG

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Re: Our FI Allocation: Help

Post by andrew99999 » Wed Jul 29, 2020 3:19 am

galeno wrote:
Tue Jul 28, 2020 7:30 pm
I completely understand why a Canadian would want to hold UNHEGED World Bonds.
Why is that?

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Re: Our FI Allocation: Help

Post by galeno » Wed Jul 29, 2020 5:20 am

FWIW I backtested USD USA bonds, USD Hedged WB, and Unhedged WB.

0.5 yr CAGR (GSD):
USDB = 6.30% (3.48%)
HWB = 2.07% (7.71%)
UWB = -1.12% (13.36%)

1.5 yr CAGR (GSD):
USDB = 10.05% (3.51%)
HWB = 5.89% (4.36%)
UWB = 3.62% (7.89%)

3.5 yr CAGR (GSD):
USDB = 5.17% (3.10%)
HWB = 3.59% (3.12%)
UWB = 2.97% (5.83%)

5.5 yr CAGR (GSD):
USDB = 3.78% (3.29%)
HWB = 3.39% (3.32%)
UWB = 1.98% (5.50%)

10.5 yr CAGR (GSD):
USDB = 4.00% (3.04%)
HWB = 5.11% (3.25%)
UWB = 3.35% (5.76%)
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galeno
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Re: Our FI Allocation: Help

Post by galeno » Wed Jul 29, 2020 5:32 am

Here's my theory.

USMCA is the world's best trading block. It really needs no one else.

Mexico will become the new China. Canada will become the trading empire and USMCA's "good cop" and friendly face. Everyone likes Canada.

USA will continue to withdraw it's "policing duties" from the world and concentrate on the Americas.
andrew99999 wrote:
Wed Jul 29, 2020 3:19 am
galeno wrote:
Tue Jul 28, 2020 7:30 pm
I completely understand why a Canadian would want to hold UNHEGED World Bonds.
Why is that?
KISS & STC.

Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Wed Jul 29, 2020 7:38 am

I live in two countries: Georgia and Russia. Both have unstable currencies and weakening against major ones, similar to Costa Rica, I presume.
Retired 5 years ago, now 33. But I'm still in accumulation phase since I have income from leasing property, it also covers my expenses.
My portfolio which I'm currently building is 70% equities (VWRA) and 30% FI (so far in high yield savings account). The fixed income component will probably become world bonds unhedged next year. But I also have access to high yield bank account with 3.4% yield in USD, which is way better than 0.9% YTM of world bonds. So I'm kind of undecided yet with my FI allocation.
galeno wrote:
Tue Jul 28, 2020 7:30 pm
@Rosales

Where do you live? Maybe this could help me decide between hedged vs non hedged.

I'm so curious. What does a 28 y/o FIRE port look like? How do you manage your withdrawsls for living expenses? I consider myself a FIRE expert. Since the early 1990s. And you're a FIRE unicorn.

I completely understand why a Canadian would want to hold UNHEGED World Bonds.

Why do you?
VWRA & chill | Retired @28 y.o.

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Re: Our FI Allocation: Help

Post by thibaulthib » Thu Jul 30, 2020 4:00 am

Rosales wrote:
Wed Jul 29, 2020 7:38 am
But I also have access to high yield bank account with 3.4% yield in USD.
Where and how do you have access to such thing??? This is amazing!

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Re: Our FI Allocation: Help

Post by Rosales » Thu Jul 30, 2020 4:43 pm

Bank of Georgia (credit rating - BB)

https://bankofgeorgia.ge/en/retail/depo ... ng-deposit
thibaulthib wrote:
Thu Jul 30, 2020 4:00 am
Rosales wrote:
Wed Jul 29, 2020 7:38 am
But I also have access to high yield bank account with 3.4% yield in USD.
Where and how do you have access to such thing??? This is amazing!
VWRA & chill | Retired @28 y.o.

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galeno
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Re: Our FI Allocation: Help

Post by galeno » Thu Jul 30, 2020 5:41 pm

Our local bank offers great yields on USD CDs. Even better rates with CRC CDs.

We're just too afraid to keep 50% of port in a CR bank. So we'll use AGGG.

BTW. The SEC Yield of BNDW = 1.79% vs 1.19% for BND. World bonds yield more than USD USA bonds.

That's exactly want I wanted to see before we switch to world bonds.
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Rosales
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Re: Our FI Allocation: Help

Post by Rosales » Thu Jul 30, 2020 6:32 pm

galeno wrote:
Thu Jul 30, 2020 5:41 pm
BTW. The SEC Yield of BNDW = 1.79% vs 1.19% for BND. World bonds yield more than USD USA bonds.

That's exactly want I wanted to see before we switch to world bonds.
Isn't that performance chasing? Why aren't you staying the course?

The FI part of portfolio is there for stability, not yield - that's what I learned on this forum.
VWRA & chill | Retired @28 y.o.

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Re: Our FI Allocation: Help

Post by assyadh » Thu Jul 30, 2020 6:38 pm

galeno wrote:
Thu Jul 30, 2020 5:41 pm
Our local bank offers great yields on USD CDs. Even better rates with CRC CDs.

We're just too afraid to keep 50% of port in a CR bank. So we'll use AGGG.

BTW. The SEC Yield of BNDW = 1.79% vs 1.19% for BND. World bonds yield more than USD USA bonds.

That's exactly want I wanted to see before we switch to world bonds.
Of course BNDW has a high yield, because it contains emerging markets bonds.

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galeno
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Re: Our FI Allocation: Help

Post by galeno » Fri Jul 31, 2020 5:08 am

It's not performance chasing. We've wanted to go to WB for years. A better yield is our excuse to do it.

Plus. This is our chance to hold the 2 ETF port. We would sell VDTY/VDCP and buy AGGG.

Our port would be 50% VWRD + 45% AGGG + 5% CASH.
Rosales wrote:
Thu Jul 30, 2020 6:32 pm
galeno wrote:
Thu Jul 30, 2020 5:41 pm
BTW. The SEC Yield of BNDW = 1.79% vs 1.19% for BND. World bonds yield more than USD USA bonds.

That's exactly want I wanted to see before we switch to world bonds.
Isn't that performance chasing? Why aren't you staying the course?

The FI part of portfolio is there for stability, not yield - that's what I learned on this forum.
KISS & STC.

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Re: Our FI Allocation: Help

Post by Rosales » Fri Jul 31, 2020 6:52 am

Gorgeous.
galeno wrote:
Fri Jul 31, 2020 5:08 am
Our port would be 50% VWRD + 45% AGGG + 5% CASH.
VWRA & chill | Retired @28 y.o.

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Re: Our FI Allocation: Help

Post by galeno » Sat Aug 01, 2020 8:04 am

Here's an article supporting the non-hedged WB.

https://www.barrons.com/amp/articles/he ... 1596040134
KISS & STC.

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Re: Our FI Allocation: Help

Post by galeno » Sat Aug 01, 2020 9:02 pm

I'm really tempted to go for a higher yield using a CD ladder

Our FI allocation could yield = 3.20%. Duration = 2.5 yr.

If we put it into a 5 yr USD CD ladder at our bank.

Compare that to YTM = 0.60%. Duration = 6.4 yr.

With 90% AGGG + 10% CASH.
Last edited by galeno on Sun Aug 02, 2020 3:47 pm, edited 1 time in total.
KISS & STC.

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Re: Our FI Allocation: Help

Post by Rosales » Sun Aug 02, 2020 1:49 pm

Will you be able to re-balance from CD without losing yield? In case of a large drawdown in equities.
galeno wrote:
Sat Aug 01, 2020 9:02 pm
I'm really tempted to go for a higher yield using a CD ladder
VWRA & chill | Retired @28 y.o.

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Re: Our FI Allocation: Help

Post by galeno » Sun Aug 02, 2020 3:14 pm

The CD ladder would look like this. It's designed to maximize yield while supplying our retirement spending needs.

But not efficient for rebalancing. Our equities (VWRD) at IB. Our CDs and MMF at our bank.

The higher yield (3.20% vs 0.60%) and the shorter duration (2.5 yr vs 6.4 yr) of the CD ladder is EXREMELY tempting.

1.66% MMF (0.25%)
1.66% 03 mo CD (0.75%)
1.66% 06 mo CD (2.00%)
1.66% 09 mo CD (2.62%)
1.66% 12 mo CD (3.50%)

18% 01 yr CD (3.50%)
18% 02 yr CD (3.75%)
18% 03 yr CD (4.00%)
18% 04 yr CD (4.25%)
18% 05 yr CD (4.50%)
KISS & STC.

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