Ryan,
Dr. Sri Kumar, among others, agrees with you that we are in a deflationary cycle. I tend to lean that direction, but feel like we have been there inspite of Fed policy. Dr. Kumar believes we will see a 10 Year Treasury at 1%, and 30 Year mortgages under 3%. Here is a link to his website where you can read some of his interesting ideas.
Igy
I get it. But I think you had said that bond portfolios should be more toward 2-3 year duration range. As if that is a standing rule for any portfolio.
Ghost of Igloi wrote:
Ryan,
I think you missed my point. I am not against any type of bond. I was just outlining the risks of each category. Short, intermediate and long term bonds all have a duration calculation which consists of bond term and coupon. A 30 year 2% coupon bond has a longer duration than a 30 year 3% coupon bond. That is because the higher coupon results in a shorter bond duration (maturity value - interest payments).
If your bond fund has a duration of ten years, a 1% increase in interest rates will result in a 10% loss in value of your bond fund. Earlier this year, the 10 Year Treasury moved from about 2.1% to 1.37% resulting in large capital appreciation in bonds, some driven by interest rates and others by capital flows.
Duration calculation for bonds is as important as Price/Earnings for stocks.
Igy
General question for posters on this thread - any analysts or traders here? Or just interested folks and day traders? I might start following the thread so curious what the different perspectives are.
Ryan,
Let's say we are talking about a 40% bond portfolio. I might allocate something like this: 10% intermediate, 5% floating rate, 5% TIPS, and 20% short. So the slant would be to liquidity, but positioning for both rising and falling rates/inflation.
Igy
Trollminator,
I believe a collection of all of the above. Most of us like to just talk about the markets.
Igy
Who says we are talking about a 40% allocation? That strikes me as an allocation fit for a retiree's IRA whose main goal is to maintain a floor under his portfolio. That's not me. Cut to the chase. What situation would you own long term bond funds? You seem to be disagreeing with me, but at the same time you haven't disputed anything I have said.
Ghost of Igloi wrote:
Ryan,
Let's say we are talking about a 40% bond portfolio. I might allocate something like this: 10% intermediate, 5% floating rate, 5% TIPS, and 20% short. So the slant would be to liquidity, but positioning for both rising and falling rates/inflation.
Igy
Ryan,
Stocks are trading at two standard deviations above the norm so I leave it to you to decide what your stock/bond allocation should be. In regards to the Vanguard Long Term Bond ETF the effective duration is 15.6 years, which means a 1% increase in rates results in a 15% loss of principle. The interest rate risk far exceeds the deflation hedge. I would rather be in Doubleline Intermediate (DBLTX) or MetWest intermediate (MWTIX).
Igy
Ryan,
I just checked on Morningstar:
Vanguard Long Term Bond (VGLT)
Yield 2.49%
Duration 17.92 years
DoubleLine Total Return (DBLTX)
Yield 3.29%
Duration 2.57 years
Interest rates are at historical lows, sure interest rates can go lower and that is your only bet. The yield on DoubleLine is higher with only negligible interest rates risk. Last week with rising rates DoubleLine far exceeded Vanguard.
Choose your weapon.
Igy
One Month Performance
VGLT -7.35%
DBLTX -0.81%
That is duration and fund flows in action.
Igy
Ghost of Igloi wrote:
Buffett makes the same statement all the time.
The Buffett Indicator on the other hand shows stock valuations two standard deviations above the norm.
Igy
Buffett has actually been bearish as recently as earlier this year. With his track record, one would be foolish to discount him.
ryan foreman wrote:
Who says we are talking about a 40% allocation? That strikes me as an allocation fit for a retiree's IRA whose main goal is to maintain a floor under his portfolio. That's not me.
Cut to the chase. What situation would you own long term bond funds?
You seem to be disagreeing with me, but at the same time you haven't disputed anything I have said.
Ghost of Igloi wrote:Ryan,
Let's say we are talking about a 40% bond portfolio. I might allocate something like this: 10% intermediate, 5% floating rate, 5% TIPS, and 20% short. So the slant would be to liquidity, but positioning for both rising and falling rates/inflation.
Igy
Igy is on record as recommending a 15% equity investment. His clients have been losing purchasing power for months, if not years.
Lurker,That is not correct even as a general allocation for a retiree.Igy
Lurker wrote:
ryan foreman wrote:Who says we are talking about a 40% allocation? That strikes me as an allocation fit for a retiree's IRA whose main goal is to maintain a floor under his portfolio. That's not me.
Cut to the chase. What situation would you own long term bond funds?
You seem to be disagreeing with me, but at the same time you haven't disputed anything I have said.
Igy is on record as recommending a 15% equity investment. His clients have been losing purchasing power for months, if not years.
Lurker,
One week ago the Dow Jones Industrial Average and S&P 500 sat below the level when I first posted here. We have had many months of movement up and down since December 31, 2014, but very little progress. During that period S&P 500 GAAP EPS has declined double digits. In case you didn't notice bonds were not the only loser last week, note FANG, utilities, REITs, and emerging markets.
Igy
Ghost of Igloi wrote:
Lurker,
That is not correct even as a general allocation for a retiree.
Igy
Lurker wrote:Igy is on record as recommending a 15% equity investment. His clients have been losing purchasing power for months, if not years.
Of course not!
Lurker wrote:
ryan foreman wrote:Who says we are talking about a 40% allocation? That strikes me as an allocation fit for a retiree's IRA whose main goal is to maintain a floor under his portfolio. That's not me.
Cut to the chase. What situation would you own long term bond funds?
You seem to be disagreeing with me, but at the same time you haven't disputed anything I have said.
Igy is on record as recommending a 15% equity investment. His clients have been losing purchasing power for months, if not years.
Igy prefers a 20% equity allocation for young retirees, but you were close. And you were right on the money about losing purchasing power.
Joe,
More correctly, a 20-30% allocation to equities for young retirees. It is simply a sequence of return and stock valuation call. Furthermore, I would hold larger positions of cash and short term bonds.
Igy
I'm somewhat heartened to see that you've taken my advice and now allow for up to 30% equities. I still don't think it's enough, but at least you're moving in the right direction. There may be hope for you yet.
Yes Joe your wisdom and experience is unparalleled.
Igy
Hardly, but we can all learn from each other. No?
Sure.