Bonds - Throw it all on the table!!!

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raven15
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Re: Bonds - Throw it all on the table!!!

Post by raven15 » Fri Dec 07, 2018 8:30 pm

hdas wrote:
Fri Dec 07, 2018 5:04 pm
HEDGEFUNDIE wrote:
Fri Dec 07, 2018 4:54 pm
Why do you want to shorten your duration? The only correct answer is you have grown old and your investing horizon has shortened below EDV's duration, and so holding an ultra-long bond fund no longer suits your needs. And if this were the case, you would have seen significant total return from the previous 20-30 years that you held EDV, very little chance of a loss over that long of a holding period.

If you want to shorten duration because you think interest rates are going up, that is pure market timing and not worthy of discussion on Bogleheads. How many people were convinced interest rates had nowhere to go but up for the next several years? And all of a sudden last week the Fed comes out and says we are "within spitting distance" of neutral rates. So much for market timing...
Good points. However, Im becoming convinced that the proper thing to do is to leverage the short end. And I completely understand why this is not appealing or feasible for most ppl. H
I don’t know what HedgeFundie is thinking. This is the actual answer. Say you have 10% in EDV. You want 50% bonds when you retire. When you are 10 years out you start converting 4% per year to ibonds, CD’s, short term TIPS, and the like. Keep EDV. After 10 years you will have 50% in bonds which will be 80% short term /safe (let’s say average duration 2 years), 20% EDV (duration 25 years). Weighted duration will be 25*.2 + 2*.8 = 6.6 years the same duration as any intermediate or total bond fund. So the answer is to add short term instruments until you get your target interest rate sensitivity.
It's Time. Adding Interest.

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Re: Bonds - Throw it all on the table!!!

Post by HEDGEFUNDIE » Fri Dec 07, 2018 8:42 pm

raven15 wrote:
Fri Dec 07, 2018 8:30 pm
hdas wrote:
Fri Dec 07, 2018 5:04 pm
HEDGEFUNDIE wrote:
Fri Dec 07, 2018 4:54 pm
Why do you want to shorten your duration? The only correct answer is you have grown old and your investing horizon has shortened below EDV's duration, and so holding an ultra-long bond fund no longer suits your needs. And if this were the case, you would have seen significant total return from the previous 20-30 years that you held EDV, very little chance of a loss over that long of a holding period.

If you want to shorten duration because you think interest rates are going up, that is pure market timing and not worthy of discussion on Bogleheads. How many people were convinced interest rates had nowhere to go but up for the next several years? And all of a sudden last week the Fed comes out and says we are "within spitting distance" of neutral rates. So much for market timing...
Good points. However, Im becoming convinced that the proper thing to do is to leverage the short end. And I completely understand why this is not appealing or feasible for most ppl. H
I don’t know what HedgeFundie is thinking. This is the actual answer. Say you have 10% in EDV. You want 50% bonds when you retire. When you are 10 years out you start converting 4% per year to ibonds, CD’s, short term TIPS, and the like. Keep EDV. After 10 years you will have 50% in bonds which will be 80% short term /safe (let’s say average duration 2 years), 20% EDV (duration 25 years). Weighted duration will be 25*.2 + 2*.8 = 6.6 years the same duration as any intermediate or total bond fund. So the answer is to add short term instruments until you get your target interest rate sensitivity.
How did what I say contradict anything you wrote here?

Absolutely when you get closer to retirement you should supplement/replace EDV with shorter term bond funds...

Only thing I would add, though, is that your investment horizon includes retirement. So hitting retirement age means you still have an investment horizon of 20-30 years...

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spdoublebass
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Re: Bonds - Throw it all on the table!!!

Post by spdoublebass » Fri Dec 07, 2018 10:49 pm

HEDGEFUNDIE wrote:
Fri Dec 07, 2018 4:54 pm
spdoublebass wrote:
Fri Dec 07, 2018 12:57 pm
HEDGEFUNDIE wrote:
Thu Dec 06, 2018 6:22 pm
columbia wrote:
Thu Dec 06, 2018 5:42 pm
I’m not too proud....

I don’t understand the case where one would prefer STRIPS (or an ETF like EDV) over long treasuries.

Help on understanding that would be appreciated.
The duration of EDV is 24.3 yrs compared to VUSTX which is 16.6 yrs; duration is how long it takes for the bondholder to get repaid, zero coupon bonds make no regular interest payments and so it makes sense the duration should be longer.

This means EDV has much higher volatility and slightly higher returns than “ordinary” long treasuries (6.5% CAGR vs 4.9% CAGR over past 10 years).

When paired with TSM in a portfolio, EDV’s higher volatility actually produces a portfolio with higher Sharpe ratio due to its negative correlation with stocks.
What I still do not understand, even though many have explained it to me, is how you exit these funds.

I agree 100% with what you stated above. You stated facts.

My problem is if I'm 20 or 30 years old with a 90/10 AA, holding 10% in EDV. When I want to shorten my duration what do I do?
Why do you want to shorten your duration? The only correct answer is you have grown old and your investing horizon has shortened below EDV's duration, and so holding an ultra-long bond fund no longer suits your needs. And if this were the case, you would have seen significant total return from the previous 20-30 years that you held EDV, very little chance of a loss over that long of a holding period.

If you want to shorten duration because you think interest rates are going up, that is pure market timing and not worthy of discussion on Bogleheads. How many people were convinced interest rates had nowhere to go but up for the next several years? And all of a sudden last week the Fed comes out and says we are "within spitting distance" of neutral rates. So much for market timing...
You are assuming you will be rewarded by holding the bond fund to the duration. However, it's a fund, not a bond. You could very easily show a negative return 20 years from now holding EDV.

Holding for Twice the duration, yeah, I would think that would show a positive return. Which is what I read here on this forum often.

You are assuming I want to shorten duration because I'm market timing. I'm not, I just do not know what interest rates will do. EDV, I just do not understand how you exit the fund if you are going to adjust your AA as you age. I guess if you start with 10% then always hold that much adding other bond funds that makes sense.
I'm trying to think, but nothing happens

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hdas
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Re: Bonds - Throw it all on the table!!!

Post by hdas » Sat Dec 08, 2018 12:17 pm

HEDGEFUNDIE wrote:
Fri Dec 07, 2018 8:42 pm

How did what I say contradict anything you wrote here?

Absolutely when you get closer to retirement you should supplement/replace EDV with shorter term bond funds...

Only thing I would add, though, is that your investment horizon includes retirement. So hitting retirement age means you still have an investment horizon of 20-30 years...
I'm not the person you are asking the question, however, the big point you seem to be ignoring is the negative convexity of bonds, this is why you are better off leveraging the short end. The mechanics of this can be slightly more complex relative to buying and holding an etf, but I believe is the right thing to do. I've yet to hear a good reason against. H
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

columbia
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Re: Bonds - Throw it all on the table!!!

Post by columbia » Sat Dec 08, 2018 12:25 pm

hdas wrote:
Sat Dec 08, 2018 12:17 pm
HEDGEFUNDIE wrote:
Fri Dec 07, 2018 8:42 pm

How did what I say contradict anything you wrote here?

Absolutely when you get closer to retirement you should supplement/replace EDV with shorter term bond funds...

Only thing I would add, though, is that your investment horizon includes retirement. So hitting retirement age means you still have an investment horizon of 20-30 years...
I'm not the person you are asking the question, however, the big point you seem to be ignoring is the negative convexity of bonds, this is why you are better off leveraging the short end. The mechanics of this can be slightly more complex relative to buying and holding an etf, but I believe is the right thing to do. I've yet to hear a good reason against. H
Is that because there’s not a (reasonable) leveraged short bond fund?

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Re: Bonds - Throw it all on the table!!!

Post by HEDGEFUNDIE » Sat Dec 08, 2018 12:38 pm

hdas wrote:
Sat Dec 08, 2018 12:17 pm
HEDGEFUNDIE wrote:
Fri Dec 07, 2018 8:42 pm

How did what I say contradict anything you wrote here?

Absolutely when you get closer to retirement you should supplement/replace EDV with shorter term bond funds...

Only thing I would add, though, is that your investment horizon includes retirement. So hitting retirement age means you still have an investment horizon of 20-30 years...
I'm not the person you are asking the question, however, the big point you seem to be ignoring is the negative convexity of bonds, this is why you are better off leveraging the short end. The mechanics of this can be slightly more complex relative to buying and holding an etf, but I believe is the right thing to do. I've yet to hear a good reason against. H
I’m not ignoring it at all. The practical impact of negative convexity on a bond fund is higher price volatility. When you buy a long term bond fund you have already decided to take on high volatility. And also, if you buy long bonds because of their negative correlation to stocks, higher volatility is not necessarily a bad thing.

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hdas
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Re: Bonds - Throw it all on the table!!!

Post by hdas » Sat Dec 08, 2018 1:02 pm

HEDGEFUNDIE wrote:
Sat Dec 08, 2018 12:38 pm

I’m not ignoring it at all. The practical impact of negative convexity on a bond fund is higher price volatility. When you buy a long term bond fund you have already decided to take on high volatility. And also, if you buy long bonds because of their negative correlation to stocks, higher volatility is not necessarily a bad thing.
I just started looking deep into this, so this could be subject to revision. Like you, I favor long term bonds (unlevered) over total or intermediate IF THOSE WERE MY ONLY OPTIONS. However, I hypothesize that by leveraging a shorter maturity, I would get all the goodies of negative correlation with stocks + higher returns by capitalizing on the low volatility anomaly. I'm open to hear any educated criticism to this strategy. H
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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Re: Bonds - Throw it all on the table!!!

Post by HEDGEFUNDIE » Sat Dec 08, 2018 1:13 pm

hdas wrote:
Sat Dec 08, 2018 1:02 pm
HEDGEFUNDIE wrote:
Sat Dec 08, 2018 12:38 pm

I’m not ignoring it at all. The practical impact of negative convexity on a bond fund is higher price volatility. When you buy a long term bond fund you have already decided to take on high volatility. And also, if you buy long bonds because of their negative correlation to stocks, higher volatility is not necessarily a bad thing.
I just started looking deep into this, so this could be subject to revision. Like you, I favor long term bonds (unlevered) over total or intermediate IF THOSE WERE MY ONLY OPTIONS. However, I hypothesize that by leveraging a shorter maturity, I would get all the goodies of negative correlation with stocks + higher returns by capitalizing on the low volatility anomaly. I'm open to hear any educated criticism to this strategy. H
My guess is the cost of margin outweighs the leveraged returns, especially at the short end.

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hdas
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Re: Bonds - Throw it all on the table!!!

Post by hdas » Sat Dec 08, 2018 1:33 pm

HEDGEFUNDIE wrote:
Sat Dec 08, 2018 1:13 pm
hdas wrote:
Sat Dec 08, 2018 1:02 pm
HEDGEFUNDIE wrote:
Sat Dec 08, 2018 12:38 pm

I’m not ignoring it at all. The practical impact of negative convexity on a bond fund is higher price volatility. When you buy a long term bond fund you have already decided to take on high volatility. And also, if you buy long bonds because of their negative correlation to stocks, higher volatility is not necessarily a bad thing.
I just started looking deep into this, so this could be subject to revision. Like you, I favor long term bonds (unlevered) over total or intermediate IF THOSE WERE MY ONLY OPTIONS. However, I hypothesize that by leveraging a shorter maturity, I would get all the goodies of negative correlation with stocks + higher returns by capitalizing on the low volatility anomaly. I'm open to hear any educated criticism to this strategy. H
My guess is the cost of margin outweighs the leveraged returns, especially at the short end.
Fair enough. You wont be hearing much from me about this topic If I find out your guess is not true. H :twisted: :beer
"whenever there is a randomized way of doing something, then there is a nonrandomized way that delivers better performance but requires more thought" ET Jaynes

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abuss368
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Wed May 29, 2019 8:14 pm

Bogleheads -

Vanguard has continued to recommend a two fund bond strategy approach for many portfolios: Total Bond Index and Total International Bond Index.

Short Term TIPS are added to the late stage Target funds.
John C. Bogle: "Simplicity is the master key to financial success."

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vineviz
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Re: Bonds - Throw it all on the table!!!

Post by vineviz » Thu May 30, 2019 7:48 am

spdoublebass wrote:
Fri Dec 07, 2018 10:49 pm
You are assuming you will be rewarded by holding the bond fund to the duration. However, it's a fund, not a bond.
That assumption wasn't implicit in anything HEDGEFUNDIE wrote. He knows (I'm quite sure) that EDV is a fund.

The two primary ways of managing a portfolio of bonds, fixed maturity and fixed duration, will offer slightly different return streams it's true and it's not clear which of those differences you think is material though.


You could very easily show a negative return 20 years from now holding EDV.

Holding for Twice the duration, yeah, I would think that would show a positive return. Which is what I read here on this forum often.
spdoublebass wrote:
Fri Dec 07, 2018 10:49 pm
You are assuming I want to shorten duration because I'm market timing. I'm not, I just do not know what interest rates will do.
Well, the default "not market timing" approach to portfolio management is to match the duration of your bonds to the length of your investment horizon.
spdoublebass wrote:
Fri Dec 07, 2018 10:49 pm
EDV, I just do not understand how you exit the fund if you are going to adjust your AA as you age. I guess if you start with 10% then always hold that much adding other bond funds that makes sense.
Yeah, it's really not any different in principal from any other time of gradual asset allocation change. Many people gradually reduce their equity allocation as they age, both through new contributions and rebalancing, and adjusting the bond duration is just like that.

For example:

Image
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Carlos Danger
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Re: Bonds - Throw it all on the table!!!

Post by Carlos Danger » Thu May 30, 2019 9:18 am

In our Vanguard accounts I use TLT.

In a crummy "OneAmerica" 403(b) plan I use JAFLX (an intermediate term bond fund from Janus), but not by choice. It's literally the only bond "choice" in that trash plan. I'd use long-term treasuries there too if I could.

Chris K Jones
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Re: Bonds - Throw it all on the table!!!

Post by Chris K Jones » Thu May 30, 2019 9:31 am

1) List the bond funds, individual bonds, CD's, etc. that you invest in:
Vanguard intermediate Term Bond Index Admiral shares (VBILX)
Vanguard intermediate Term tax exempt (VWIUX)
Fidelity US Bond Index (FXNAX)
2) In which account what fixed income securities are held
VBILX and FXNAX fill my tax advantaged space (IRAs, HSA).
VWIUX in taxable account
3) Allocation as a percentage of Fixed Income
77% VBILX
19% VWIUX
4% FXNAX
4) Allocation to bonds overall (i.e. age in bonds, etc.)
40% ( I consider 60% equities and 40% fixed income my long term allocation)
5) Any other plans such as adding more bonds funds, consolidating and merging, etc.
If or when income drops so tax exempt becomes less attractive, will move funds in VWIUX to VBILX in taxable account.

Best wishes to all.

robertmcd
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Re: Bonds - Throw it all on the table!!!

Post by robertmcd » Thu May 30, 2019 11:05 am

HEDGEFUNDIE wrote:
Sat Dec 08, 2018 1:13 pm
hdas wrote:
Sat Dec 08, 2018 1:02 pm
HEDGEFUNDIE wrote:
Sat Dec 08, 2018 12:38 pm

I’m not ignoring it at all. The practical impact of negative convexity on a bond fund is higher price volatility. When you buy a long term bond fund you have already decided to take on high volatility. And also, if you buy long bonds because of their negative correlation to stocks, higher volatility is not necessarily a bad thing.
I just started looking deep into this, so this could be subject to revision. Like you, I favor long term bonds (unlevered) over total or intermediate IF THOSE WERE MY ONLY OPTIONS. However, I hypothesize that by leveraging a shorter maturity, I would get all the goodies of negative correlation with stocks + higher returns by capitalizing on the low volatility anomaly. I'm open to hear any educated criticism to this strategy. H
My guess is the cost of margin outweighs the leveraged returns, especially at the short end.
Backtesting shows holding a portfolio of 90% 2 yr treasuries and 10% US stocks to have the highest sharpe ratio. Lever it up and it performs significantly better than a portfolio consisting of US stocks and long term treasuries. Right now you would be losing to the 3 mo t bill and 2 yr spread, but it the event of a bear market in stocks, the 2 yr dropping significantly more than the 30 yr would reduce the drawdown more than holding the longer term bonds.

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vineviz
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Re: Bonds - Throw it all on the table!!!

Post by vineviz » Thu May 30, 2019 12:29 pm

robertmcd wrote:
Thu May 30, 2019 11:05 am
Backtesting shows holding a portfolio of 90% 2 yr treasuries and 10% US stocks to have the highest sharpe ratio. Lever it up and it performs significantly better than a portfolio consisting of US stocks and long term treasuries. Right now you would be losing to the 3 mo t bill and 2 yr spread, but it the event of a bear market in stocks, the 2 yr dropping significantly more than the 30 yr would reduce the drawdown more than holding the longer term bonds.
Using even the best margin loan rates available to retail investors, leveraging a portfolio that is 90% short-term Treasuries would be a surefire way to lose everything you had.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Bonds - Throw it all on the table!!!

Post by robertmcd » Thu May 30, 2019 1:03 pm

vineviz wrote:
Thu May 30, 2019 12:29 pm
robertmcd wrote:
Thu May 30, 2019 11:05 am
Backtesting shows holding a portfolio of 90% 2 yr treasuries and 10% US stocks to have the highest sharpe ratio. Lever it up and it performs significantly better than a portfolio consisting of US stocks and long term treasuries. Right now you would be losing to the 3 mo t bill and 2 yr spread, but it the event of a bear market in stocks, the 2 yr dropping significantly more than the 30 yr would reduce the drawdown more than holding the longer term bonds.
Using even the best margin loan rates available to retail investors, leveraging a portfolio that is 90% short-term Treasuries would be a surefire way to lose everything you had.
You leverage using futures.

Rob Bertram is using a roughly 25x levered 10/90 portfolio

viewtopic.php?t=143037

For something more reasonable, 10/90 leveraged 10x for a stock exposure of 100% and a short term treasury exposure of 900%, the portfolio results are pretty impressive.

https://www.portfoliovisualizer.com/bac ... 0&total3=0

Ferdinand2014
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Re: Bonds - Throw it all on the table!!!

Post by Ferdinand2014 » Thu May 30, 2019 1:15 pm

abuss368 wrote:
Wed Jan 29, 2014 6:29 pm
Bogleheads there have been many excellent threads over the last couple of weeks related to bonds. I started a couple with polls and the results were excellent. Often a poll is limited, needs more options, etc.

I would like to try an open ended thread on your personal bond strategy.

Please simply note:

1) List the bond funds, individual bonds, CD's, etc. that you invest in
2) In which account what fixed income securities are held
3) Allocation as a percentage of Fixed Income
4) Allocation to bonds overall (i.e. age in bonds, etc.)
5) Any other plans such as adding more bonds funds, consolidating and merging, etc.

Hopefully this thread provides an inside peak into how Bogleheads manage their fixed income allocation and will help other investors.

Best.
1.) T-Bills bought at auction through Fidelity on Auto-Roll
2.) Taxable (a portion doubles as emergency fund)
3.) 100%
4.) 15% currently. IPS calls for 10% minimum. Varies by lumpy purchases such as a vehicle. 15 years from retirement currently for me. DW 20 plus years.
5.) Will adjust (as needed) to minimum X dollars (not %) of 3 years expenses by my retirement and 5 years expenses minimum when both DW and I are both retired.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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vineviz
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Re: Bonds - Throw it all on the table!!!

Post by vineviz » Thu May 30, 2019 1:25 pm

robertmcd wrote:
Thu May 30, 2019 1:03 pm
vineviz wrote:
Thu May 30, 2019 12:29 pm
robertmcd wrote:
Thu May 30, 2019 11:05 am
Backtesting shows holding a portfolio of 90% 2 yr treasuries and 10% US stocks to have the highest sharpe ratio. Lever it up and it performs significantly better than a portfolio consisting of US stocks and long term treasuries. Right now you would be losing to the 3 mo t bill and 2 yr spread, but it the event of a bear market in stocks, the 2 yr dropping significantly more than the 30 yr would reduce the drawdown more than holding the longer term bonds.
Using even the best margin loan rates available to retail investors, leveraging a portfolio that is 90% short-term Treasuries would be a surefire way to lose everything you had.
You leverage using futures.

Rob Bertram is using a roughly 25x levered 10/90 portfolio

viewtopic.php?t=143037

For something more reasonable, 10/90 leveraged 10x for a stock exposure of 100% and a short term treasury exposure of 900%, the portfolio results are pretty impressive.

https://www.portfoliovisualizer.com/bac ... 0&total3=0
An individual investor managing a 25x leveraged portfolio using futures is a fringe case by any measure.

Not saying it wouldn’t be exciting, but I feel confident that far fewer people can do it then think they can do it. Or even think they did it.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

Ferdinand2014
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Re: Bonds - Throw it all on the table!!!

Post by Ferdinand2014 » Thu May 30, 2019 1:35 pm

papito23 wrote:
Wed Jan 29, 2014 10:09 pm
ot1138 wrote:1) List the bond funds, individual bonds, CD's, etc. that you invest in
...
I keep all fixed income in taxable accounts. This is the opposite of what the wiki suggests. My reasoning for this is that my future expected returns for equities will be significantly higher than bonds, so I'd rather shelter as much equities as I can in TAA accounts.
This just came to me the other day. Not an original thought, but original to me. I can't figure out why I hadn't seen this on Bogleheads before, after reading hundreds of posts. Perhaps because so many are in high income tax brackets, that the tax inefficiency is just too hard to bear? Not my case.
It’s my preference as well.
I use only T-Bills and in taxable:
1.) I see fixed income as safety, not a hedge.
2.) I like the liquidity - it doubles as emergency fund.
3.) State and local tax deduction
4.) doesn’t clog up my tax deferred space with low yield investments. Prefer my equity in tax deferred as much as possible and not paying taxes on dividends or capital gains.
“You only find out who is swimming naked when the tide goes out.“ — Warren Buffett

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Re: Bonds - Throw it all on the table!!!

Post by pascalwager » Thu May 30, 2019 3:07 pm

Retiree, age 76, one dependent, pension with 2% max COLA and 80% floor, no SS, mainly use my portfolio for taxes and medical/dental

1) List the bond funds, individual bonds, CD's, etc. that you invest in:
-Vg Total Bond Market fund
-Vg Inflation Protected Securities fund

2) In which account what fixed income securities are held:
-Vg Total Bond Market: Variable annuity account
-Vg Inflation Protected Securities: Rollover IRA
-Vg Inflation Protected Securities: Individual (taxable) account

3) Allocation as a percentage of Fixed Income:
-Vg Total Bond Market: Variable annuity, 53%
-Vg Inflation Protected Securities: Rollover IRA, 28%
-Vg Inflation Protected Securities: Individual, 19%

4) Allocation to bonds overall:
46% bonds, will gradually decrease to 40% by withdrawing only from bonds for awhile.

5) Any other plans such as adding more bonds funds, consolidating and merging, etc:
My current overall duration is 6.8 years and my life expectancy is ten years. As my life-expectancy becomes shorter, I'll begin replacing some of the intermediate-term IPS with short-term IPS to reduce the duration. The bond fund choices in the variable annuity are limited.

Aleuromancer
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Re: Bonds - Throw it all on the table!!!

Post by Aleuromancer » Thu May 30, 2019 11:33 pm

1) List the bond funds, individual bonds, CD's, etc. that you invest in:

-Thrift Savings Plan G-Fund
-Washington State Bond Fund (roughly a short to intermediate corporate bond fund)
-Vanguard Total International Bond Admiral shares (VTABX)
I've only held VTABX in my Roth since November 2018. I believe WA Bond does hold some International, somewhere from 15-20% is my guess.

2) In which account the fixed income securities are held:

The G-Fund is of course held in federal TSP 457 deferred account.
The corporate bond fund is held in a state 401(a).
With the total international being held in a Roth IRA.

3) Allocation as a percentage of fixed income:
G-Fund: 53% of bond allocation
WA Bond: 33%
VTABX: 14%

4) Allocation to bonds overall:
30% - its been at this amount for awhile. I base my bond allocation by periodically taking risk assessment tests. So far, 30% appears to be a good amount for me.

5)Any such plans such as adding more bond funds, consolidating and merging, etc.
I don't know right now---I expect I will increase my bond allocation when risk assessments indicate I've become more risk adverse.

rhe
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Re: Bonds - Throw it all on the table!!!

Post by rhe » Fri May 31, 2019 7:03 am

vineviz wrote:
Thu May 30, 2019 1:25 pm

An individual investor managing a 25x leveraged portfolio using futures is a fringe case by any measure.

Not saying it wouldn’t be exciting, but I feel confident that far fewer people can do it then think they can do it. Or even think they did it.
This is certainly true for the population in general! Keep in mind, though, that any standard financial theory course will teach the capital asset pricing model, and a major conclusion of that model is basically "hold the market portfolio and leverage it according to your risk aversion." Implementing this in practice doesn't require anything more complicated than high school math, although you do have to be quite sure you did the calculations correctly...

Also, I don't think leverage ratios are a very useful way of thinking about bond portfolios. At one point I held a futures position in australian 90 day bills. The contract size for these futures is $1 million. The duration is 0.25. If I leveraged this 20x, is it really more dangerous than holding a ten year cash bond? The cash bond would be safer on convexity, but riskier on straight up duration.

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Re: Bonds - Throw it all on the table!!!

Post by vineviz » Fri May 31, 2019 7:32 am

rhe wrote:
Fri May 31, 2019 7:03 am
vineviz wrote:
Thu May 30, 2019 1:25 pm

An individual investor managing a 25x leveraged portfolio using futures is a fringe case by any measure.

Not saying it wouldn’t be exciting, but I feel confident that far fewer people can do it then think they can do it. Or even think they did it.
This is certainly true for the population in general! Keep in mind, though, that any standard financial theory course will teach the capital asset pricing model, and a major conclusion of that model is basically "hold the market portfolio and leverage it according to your risk aversion." Implementing this in practice doesn't require anything more complicated than high school math, although you do have to be quite sure you did the calculations correctly...
Indeed. The assumption that all investors can borrow and lend freely at the risk-free rate is one of the most unreasonable assumptions in the CAPM.
rhe wrote:
Fri May 31, 2019 7:03 am
Also, I don't think leverage ratios are a very useful way of thinking about bond portfolios.
You're probably right on this. I should find a more descriptive way to disparage describe the utility of this for the typical investor.
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Re: Bonds - Throw it all on the table!!!

Post by Dave55 » Fri May 31, 2019 8:16 am

Vanguard Intermediate Investment Grade
Vanguard Total Bond Mkt.
Vanguard Short Term Tax Exempt

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Re: Bonds - Throw it all on the table!!!

Post by robertmcd » Fri May 31, 2019 10:50 am

vineviz wrote:
Fri May 31, 2019 7:32 am
rhe wrote:
Fri May 31, 2019 7:03 am
vineviz wrote:
Thu May 30, 2019 1:25 pm

An individual investor managing a 25x leveraged portfolio using futures is a fringe case by any measure.

Not saying it wouldn’t be exciting, but I feel confident that far fewer people can do it then think they can do it. Or even think they did it.
This is certainly true for the population in general! Keep in mind, though, that any standard financial theory course will teach the capital asset pricing model, and a major conclusion of that model is basically "hold the market portfolio and leverage it according to your risk aversion." Implementing this in practice doesn't require anything more complicated than high school math, although you do have to be quite sure you did the calculations correctly...
Indeed. The assumption that all investors can borrow and lend freely at the risk-free rate is one of the most unreasonable assumptions in the CAPM.
rhe wrote:
Fri May 31, 2019 7:03 am
Also, I don't think leverage ratios are a very useful way of thinking about bond portfolios.
You're probably right on this. I should find a more descriptive way to disparage describe the utility of this for the typical investor.
Well other than the cost of the futures contracts and rolling them quarterly. The cost of borrowing for futures is very close to the risk free rate.

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Re: Bonds - Throw it all on the table!!!

Post by rhe » Fri May 31, 2019 8:09 pm

vineviz wrote:
Fri May 31, 2019 7:32 am
The assumption that all investors can borrow and lend freely at the risk-free rate is one of the most unreasonable assumptions in the CAPM.
Certainly unreasonable in general, but government bond futures are a special case. For treasuries, this information is actually available online: look for "CME treasury analytics" and take a look at the implied repo rates reported there. I haven't checked recently, but in general they are pretty close to what you would expect for risk free borrowing!

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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Fri Jun 07, 2019 7:44 pm

With bonds, higher yield almost always means higher risk.
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Sat Jun 22, 2019 8:29 pm

Years ago TIPS were a much more popular strategy and I believe holding. I have not read as many posts about them.
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Re: Bonds - Throw it all on the table!!!

Post by samstar » Sat Jun 22, 2019 9:35 pm

......
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Thu Jul 04, 2019 2:24 pm

This thread has far exceeded my expectations.
Thanks Bogleheads!
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Tue Jul 09, 2019 6:25 pm

Bumped
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Re: Bonds - Throw it all on the table!!!

Post by pinot3 » Wed Jul 10, 2019 12:05 pm

We invest in:

1) VBILX, intermediate term bond index.
2) IRAs.
3) 100% of fixed income.
4) 70% a la Rick Ferri's 30/70 center of gravity allocation for retirees.
5) No plans to add, consolidate or merge.

Retired. 68 next month. Lived through downturn in 2008/9 and lost lots on paper. Don't have the stomach for that or opportunity to recover at this point. In 4 1/2 years of retirement, we've made more on our investments than we've been able to spend. Last month Vanguard ran a Monte Carlo simulation during a free evaluation and forecast that our assets will survive till my wife turns 105. Stay the course.
pinot3 / total expense ratio: .06%

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Re: Bonds - Throw it all on the table!!!

Post by epilnk » Wed Jul 10, 2019 2:56 pm

abuss368 wrote:
Sat Jun 22, 2019 8:29 pm
Years ago TIPS were a much more popular strategy and I believe holding. I have not read as many posts about them.
I still hold TIPS. They have definitely underperformed over the last 15-20 years - certainly not something to write in bragging about. But they're a hedge; my IPS calls for them, so there they straggle along. They'll be a good idea when they are a good idea, and we can't really predict when that will be.

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Re: Bonds - Throw it all on the table!!!

Post by Broken Man 1999 » Wed Jul 10, 2019 3:33 pm

I noticed earlier in this thread I was far more enamored with Total Bond Market Index fund, but I am no longer so fond of TBM, preferring treasuries now.

Perhaps I have been influenced by Larry Swedroe's advice to take your risk in the equity side.

Anyway, I have had a change of thought.

No disparaging of TBM, just personal preference.

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Re: Bonds - Throw it all on the table!!!

Post by Sandtrap » Wed Jul 10, 2019 3:48 pm

Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Index
Intermediate Term Investment Grade Index

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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Wed Jul 10, 2019 3:53 pm

Broken Man 1999 wrote:
Wed Jul 10, 2019 3:33 pm
I noticed earlier in this thread I was far more enamored with Total Bond Market Index fund, but I am no longer so fond of TBM, preferring treasuries now.

Perhaps I have been influenced by Larry Swedroe's advice to take your risk in the equity side.

Anyway, I have had a change of thought.

No disparaging of TBM, just personal preference.

Broken Man 1999
David Swensen recommends Treasuries and TIPS only as well.
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Sat Jul 13, 2019 1:23 pm

Sandtrap wrote:
Wed Jul 10, 2019 3:48 pm
Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Index
Intermediate Term Investment Grade Index

j
Makes sense and it appears that you have a good bond portfolio. If you are so inclined, you may be able to consolidate further as both treasuries and corporate bonds are in Total Bond Index.
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Re: Bonds - Throw it all on the table!!!

Post by Sandtrap » Sat Jul 13, 2019 2:20 pm

abuss368 wrote:
Sat Jul 13, 2019 1:23 pm
Sandtrap wrote:
Wed Jul 10, 2019 3:48 pm
Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Bond Index
Intermediate Term Investment Grade Index


j
Makes sense and it appears that you have a good bond portfolio. If you are so inclined, you may be able to consolidate further as both treasuries and corporate bonds are in Total Bond Index.
I was 100% in Total Bond but a 1/3 mix of the above/below with a tilt to "investment grade" seemed logical, even if illogical.
So:
Total Bond Index
Intermediate Term Bond Index
Intermediate Term Investment Grade Index

I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?

FWIW: Vanguard REIT Index is 30% of equities.
j
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Re: Bonds - Throw it all on the table!!!

Post by vineviz » Sat Jul 13, 2019 5:01 pm

Sandtrap wrote:
Sat Jul 13, 2019 2:20 pm
I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?
Because Total Bond contains a significant amount of MBS, which have negative convexity, the average convexity of total bond is slightly negative whereas Vanguard Intermediate-Term Bond Index has significantly more positive average convexity than Total Bond with similar average duration.

If I was afraid of going all-in on long-term US treasuries (which is basically what I do in my portfolio) I'd probably do something like 50/50 combination of Vanguard Long-Term Treasury Index and Vanguard Short-Term Bond Index funds: slightly more duration and much more positive convexity than total bond.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Bonds - Throw it all on the table!!!

Post by Sandtrap » Sat Jul 13, 2019 5:11 pm

vineviz wrote:
Sat Jul 13, 2019 5:01 pm
Sandtrap wrote:
Sat Jul 13, 2019 2:20 pm
I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?
Because Total Bond contains a significant amount of MBS, which have negative convexity, the average convexity of total bond is slightly negative whereas Vanguard Intermediate-Term Bond Index has significantly more positive average convexity than Total Bond with similar average duration.

If I was afraid of going all-in on long-term US treasuries (which is basically what I do in my portfolio) I'd probably do something like 50/50 combination of Vanguard Long-Term Treasury Index and Vanguard Short-Term Bond Index funds: slightly more duration and much more positive convexity than total bond.
Swedroe has a bit to say about MBS in Total Bond. Although not a huge error to be in Total Bond, he seems to think there's enough of a difference to avoid it.
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Sat Jul 13, 2019 6:30 pm

Sandtrap wrote:
Sat Jul 13, 2019 2:20 pm
abuss368 wrote:
Sat Jul 13, 2019 1:23 pm
Sandtrap wrote:
Wed Jul 10, 2019 3:48 pm
Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Bond Index
Intermediate Term Investment Grade Index


j
Makes sense and it appears that you have a good bond portfolio. If you are so inclined, you may be able to consolidate further as both treasuries and corporate bonds are in Total Bond Index.
I was 100% in Total Bond but a 1/3 mix of the above/below with a tilt to "investment grade" seemed logical, even if illogical.
So:
Total Bond Index
Intermediate Term Bond Index
Intermediate Term Investment Grade Index

I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?

FWIW: Vanguard REIT Index is 30% of equities.
j
I believe during the financial crisis intermediate term bond declined. Total Bond actually increased. The treasury allocation of Total Bond provided the lift during the flight to safety. We have invested in Total Bond for a long time and it simply does the job. We sleep well at night.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Sat Jul 13, 2019 6:31 pm

Sandtrap wrote:
Sat Jul 13, 2019 2:20 pm
abuss368 wrote:
Sat Jul 13, 2019 1:23 pm
Sandtrap wrote:
Wed Jul 10, 2019 3:48 pm
Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Bond Index
Intermediate Term Investment Grade Index


j
Makes sense and it appears that you have a good bond portfolio. If you are so inclined, you may be able to consolidate further as both treasuries and corporate bonds are in Total Bond Index.
I was 100% in Total Bond but a 1/3 mix of the above/below with a tilt to "investment grade" seemed logical, even if illogical.
So:
Total Bond Index
Intermediate Term Bond Index
Intermediate Term Investment Grade Index

I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?

FWIW: Vanguard REIT Index is 30% of equities.
j
In my opinion a short or intermediate term investment grade bond fund that is low cost and diversified will provide safety and income to a portfolio.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Bonds - Throw it all on the table!!!

Post by Sandtrap » Sat Jul 13, 2019 7:54 pm

abuss368 wrote:
Sat Jul 13, 2019 6:30 pm
Sandtrap wrote:
Sat Jul 13, 2019 2:20 pm
abuss368 wrote:
Sat Jul 13, 2019 1:23 pm
Sandtrap wrote:
Wed Jul 10, 2019 3:48 pm
Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Bond Index
Intermediate Term Investment Grade Index


j
Makes sense and it appears that you have a good bond portfolio. If you are so inclined, you may be able to consolidate further as both treasuries and corporate bonds are in Total Bond Index.
I was 100% in Total Bond but a 1/3 mix of the above/below with a tilt to "investment grade" seemed logical, even if illogical.
So:
Total Bond Index
Intermediate Term Bond Index
Intermediate Term Investment Grade Index

I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?

FWIW: Vanguard REIT Index is 30% of equities.
j
I believe during the financial crisis intermediate term bond declined. Total Bond actually increased. The treasury allocation of Total Bond provided the lift during the flight to safety. We have invested in Total Bond for a long time and it simply does the job. We sleep well at night.
There has been a lot of discussion on this.
Some have 100% in Vanguard Intermediate Term Bond, others 100% in Total Bond.
(six or half a dozen?)
dunno?

Actionably: the beauty of a "Bogle Portfolio" and it's few variations is that it is, for the most part, "tinker proof".

j
Wiki Bogleheads Wiki: Everything You Need to Know

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Re: Bonds - Throw it all on the table!!!

Post by hudson » Sun Jul 14, 2019 6:21 pm

hudson wrote:
Thu Jan 30, 2014 8:23 am
I try to keep Larry Swedroe's advice in mind with bonds where he says something like: "Go with AAA/AA rated bonds."
Therefore, I like treasuries and AAA/AA municipal bonds...as follows:

Vanguard Intermediate-Term Tax-Exempt Fund Admiral Shares (VWIUX) (not all AAA/AA)
Vanguard Intermediate-Term Treasury Fund Admiral Shares
Baird Intermediate Municipal Bond Fund Class Institutional (Closer to AAA/AA than Van. Intermed. Term Tax-Ex.)
Vanguard Inflation-Protected Securities Fund Admiral Shares
Penfed CDs
IBonds
My original contribution was over 5 years ago.
For the most part, I'm 2/3s CDs and 1/3 VWIUX...Vang. Intermed. Muni
I would probably like anything that was Vanguard Risk Potential 1 or 2.

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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Fri Jul 26, 2019 7:33 pm

Sandtrap wrote:
Sat Jul 13, 2019 7:54 pm
abuss368 wrote:
Sat Jul 13, 2019 6:30 pm
Sandtrap wrote:
Sat Jul 13, 2019 2:20 pm
abuss368 wrote:
Sat Jul 13, 2019 1:23 pm
Sandtrap wrote:
Wed Jul 10, 2019 3:48 pm
Things have . . . "evolved". . .

Total Bond Index
Intermediate Term Treasury Bond Index
Intermediate Term Investment Grade Index


j
Makes sense and it appears that you have a good bond portfolio. If you are so inclined, you may be able to consolidate further as both treasuries and corporate bonds are in Total Bond Index.
I was 100% in Total Bond but a 1/3 mix of the above/below with a tilt to "investment grade" seemed logical, even if illogical.
So:
Total Bond Index
Intermediate Term Bond Index
Intermediate Term Investment Grade Index

I am pondering eliminating Total Bond and further consolidate to Intermed Term Bond but it's just pondering.
What are your thoughts on that?

FWIW: Vanguard REIT Index is 30% of equities.
j
I believe during the financial crisis intermediate term bond declined. Total Bond actually increased. The treasury allocation of Total Bond provided the lift during the flight to safety. We have invested in Total Bond for a long time and it simply does the job. We sleep well at night.
There has been a lot of discussion on this.
Some have 100% in Vanguard Intermediate Term Bond, others 100% in Total Bond.
(six or half a dozen?)
dunno?

Actionably: the beauty of a "Bogle Portfolio" and it's few variations is that it is, for the most part, "tinker proof".

j
It is tinker proof. As ones investor education and experience develops one appreciates that better.
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Bonds - Throw it all on the table!!!

Post by TaxingAccount » Fri Jul 26, 2019 10:57 pm

.....
Last edited by TaxingAccount on Tue Aug 13, 2019 3:20 pm, edited 1 time in total.

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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Sat Jul 27, 2019 8:34 am

TaxingAccount wrote:
Fri Jul 26, 2019 10:57 pm
abuss368 wrote:
Sat Jul 13, 2019 6:30 pm
We have invested in Total Bond for a long time and it simply does the job. We sleep well at night.
Would you still sleep well at night if interest rates go to 15% like they did in the 70s? Total bond would lose 90% of it's value and your dividends would be cut in half basically you'd be wiped out.
The answer is yes. I would stay the course and buy more. Over time higher yielding bonds would make their way into the fund. Stay the course investors would not make any change.
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Re: Bonds - Throw it all on the table!!!

Post by abuss368 » Sat Jul 27, 2019 8:35 am

TaxingAccount wrote:
Fri Jul 26, 2019 10:57 pm
abuss368 wrote:
Sat Jul 13, 2019 6:30 pm
We have invested in Total Bond for a long time and it simply does the job. We sleep well at night.
Would you still sleep well at night if interest rates go to 15% like they did in the 70s? Total bond would lose 90% of it's value and your dividends would be cut in half basically you'd be wiped out.
What do you personally do to avoid (or lower) the risk? Invest in TIPS?
John C. Bogle: "Simplicity is the master key to financial success."

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Re: Bonds - Throw it all on the table!!!

Post by TaxingAccount » Sat Jul 27, 2019 8:41 am

.....
Last edited by TaxingAccount on Tue Aug 13, 2019 3:21 pm, edited 1 time in total.

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Re: Bonds - Throw it all on the table!!!

Post by TaxingAccount » Sat Jul 27, 2019 8:42 am

.....
Last edited by TaxingAccount on Tue Aug 13, 2019 3:21 pm, edited 1 time in total.

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