Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

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Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by PennyWise7 »

Greetings! I recently received an in kind transfer of new ETFs as part of a business transaction which I am reallocating into a plan I can live with. I decided to sell some of the ETFs taking the cap gains. My goal is to diversify the portfolio and protect against inflation. Appreciate how much this board has helped me and would value your feedback on this plan. Thank you for your help.

Emergency funds: Yes

Debt: $350k mortgage on an investment property at 3.25% interest

Tax Filing Status: Single

Tax Rate: 2020 24% Federal, 9% State / 2021 might be in a higher bracket 32% Federal

State of Residence: CA

Age: 49

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 33% of stocks

Approximate size of total portfolio (7 figures)

Current retirement assets

ROTH IRA
3.5% Vanguard Real Estate Index VNQ (.12%)

SEP IRA
2.0% Vanguard Real Estate Index (VNQ) (.12%)

Taxable

29% Invesco S&P 500 Equal Weight ETF (RSP) (.20%)
6% Vanguard Total Stock Market (VTI) (.03%)
17% Vanguard International Dividend Appreciation ETF (VIGI) (.20%)
2.5% Vanguard FTSE All World Ex US Small CAP ETF (VSS) (.11%)
10% Schwab U.S. TIPS ETF (SCHP) (.05%)
10% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (.20%)
10% iShares Inflation Hedged Corporate Bond ETF (LQDI) (.18%)
10% INVESCO DB USD Bullish ETF (UUP) (.75%)

Contributions

New annual Contributions

$22K/year SEP IRA

$ variable /monthly Taxable


Questions:

1. What do you think overall?

[EDIT]
2. Would it be better to hold Vanguard Long Term Treasuries (VGLT) instead of inflation protected corporate bonds (LQDI)?

[EDIT]
Comments:
1. I am considering holding LTT, nominals, (VGLT) for deflation protection and negative correlation with stocks, but am concerned about loss of NAV due to the Fed raising rates in 2022 so considering LQDI per my question above.

2. Re: UUP: The Dollar is strong and 10% UUP could do well in a variety of circumstances where stocks and bonds don't hold up. I am looking for UUP to provide positive returns in a flight to safety, moderate term uptrend, and not lose value as rates rise. In a portfolio backtest UUP shows a relative negative correlation with the US stock market so it adds diversification and hopefully consistent positive return but in any case without major volatility (kind of a bond replacement)
Last edited by PennyWise7 on Fri Dec 03, 2021 3:43 pm, edited 4 times in total.
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40)

Post by PennyWise7 »

Bumped
ShowMeTheER
Posts: 511
Joined: Mon May 24, 2010 9:12 am

Re: Portfolio Review/(60/40)

Post by ShowMeTheER »

Looks solid.

8 funds is probably unnecessary, but appears to accomplish your goals and address your concerns (and we don’t know the CG standing of each fund anyway, in order to suggest otherwise)
HomeStretch
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Joined: Thu Dec 27, 2018 2:06 pm

Re: Portfolio Review/(60/40)

Post by HomeStretch »

Have you evaluated whether a Solo 401k plan allows you to make higher self-employed retirement contributions than a SEP IRA?

Using a Solo 401k rather than a SEP IRA allows you to do a backdoor Roth without being subject to pro-rated taxes. If your SEP IRA balance is eliminated, prioritize contributing to a backdoor Roth over a Taxable account. Roth accounts grow tax free.
User avatar
calmaniac
Posts: 1325
Joined: Fri Jan 30, 2015 2:32 pm

Re: Portfolio Review/(60/40)

Post by calmaniac »

Looks good overall. Congratulations, you are in the right path.

What are you trying to do with UUP?
"Pretired", working 20 h/wk. AA 75/25: 30% TSM, 19% value (VFVA/AVUV), 18% Int'l LC, 8% emerging, 25% GFund/VBTLX. Military pension ≈60% of expenses. Pension+SS@age 70 ≈100% of expenses.
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40)

Post by PennyWise7 »

ShowMeTheER wrote: Thu Dec 02, 2021 3:07 am Looks solid.

8 funds is probably unnecessary, but appears to accomplish your goals and address your concerns (and we don’t know the CG standing of each fund anyway, in order to suggest otherwise)
Good point 8 is definitely enough. I would prefer simplicity as well. I could sell the VSS and keep VIGI, but am avoiding incurring more cap gains for now. I prefer VIGI long term over VSS as small cap international will be more volatile. Re: 2 tips funds that seems to make sense to get a moderate duration. Not sure what else i could eliminate. It all seems to have a role or would cause taxable gains.
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40)

Post by PennyWise7 »

calmaniac wrote: Thu Dec 02, 2021 6:17 am Looks good overall. Congratulations, you are in the right path.

What are you trying to do with UUP?
Thank you kindly Sir. i added an explanation re UUP in the comment. Here it is: Re: UUP: The Dollar is strong and 10% UUP could do well in a variety of circumstances where stocks and bonds don't hold up. I am looking for UUP to provide positive returns in a flight to safety, moderate term uptrend, and not lose value as rates rise. In a portfolio backtest UUP shows a relative negative correlation with the US stock market so it adds diversification and hopefully consistent positive return but in any case without major volatility (kind of a bond replacement).
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40)

Post by PennyWise7 »

HomeStretch wrote: Thu Dec 02, 2021 6:01 am Have you evaluated whether a Solo 401k plan allows you to make higher self-employed retirement contributions than a SEP IRA?

Using a Solo 401k rather than a SEP IRA allows you to do a backdoor Roth without being subject to pro-rated taxes. If your SEP IRA balance is eliminated, prioritize contributing to a backdoor Roth over a Taxable account. Roth accounts grow tax free.
Thank you for this suggestion! Will discuss this with my CPA.
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40)

Post by PennyWise7 »

ShowMeTheER wrote: Thu Dec 02, 2021 3:07 am Looks solid.

8 funds is probably unnecessary, but appears to accomplish your goals and address your concerns (and we don’t know the CG standing of each fund anyway, in order to suggest otherwise)
Thank you for your comment. I would prefer simplicity as well. I could sell the VSS and keep VIGI, but am avoiding incurring more cap gains for now. I prefer VIGI long term over VSS as small cap international will be more volatile. Re: 2 tips funds that seems to make sense to get a moderate duration. Not sure what else I could eliminate. As you say, It all seems to have a role or would cause taxable gains.
The new purchases are:
VIGI 13%
SCHP 10%
LTPZ 10%
UUP 10%
LQDI or VGLT 10%

Let me know if you see anything to change/eliminate.
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40)

Post by PennyWise7 »

I edited the OP in the questions and comments sections...thanks for your help.
slicendice
Posts: 564
Joined: Tue Sep 22, 2020 12:08 am

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by slicendice »

PennyWise7 wrote: Wed Dec 01, 2021 2:28 am Greetings! I recently received an in kind transfer of new ETFs as part of a business transaction which I am reallocating into a plan I can live with. I decided to sell some of the ETFs taking the cap gains. My goal is to diversify the portfolio and protect against inflation. Appreciate how much this board has helped me and would value your feedback on this plan. Thank you for your help.

Emergency funds: Yes

Debt: $350k mortgage on an investment property at 3.25% interest

Tax Filing Status: Single

Tax Rate: 2020 24% Federal, 9% State / 2021 might be in a higher bracket 32% Federal

State of Residence: CA

Age: 49

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 33% of stocks

Approximate size of total portfolio (7 figures)

Current retirement assets

ROTH IRA
3.5% Vanguard Real Estate Index VNQ (.12%)

SEP IRA
2.0% Vanguard Real Estate Index (VNQ) (.12%)

Taxable

29% Invesco S&P 500 Equal Weight ETF (RSP) (.20%)
6% Vanguard Total Stock Market (VTI) (.03%)
17% Vanguard International Dividend Appreciation ETF (VIGI) (.20%)
2.5% Vanguard FTSE All World Ex US Small CAP ETF (VSS) (.11%)
10% Schwab U.S. TIPS ETF (SCHP) (.05%)
10% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (.20%)
10% iShares Inflation Hedged Corporate Bond ETF (LQDI) (.18%)
10% INVESCO DB USD Bullish ETF (UUP) (.75%)

Contributions

New annual Contributions

$22K/year SEP IRA

$ variable /monthly Taxable


Questions:

1. What do you think overall?

[EDIT]
2. Would it be better to hold Vanguard Long Term Treasuries (VGLT) instead of inflation protected corporate bonds (LQDI)?

[EDIT]
Comments:
1. I am considering holding LTT, nominals, (VGLT) for deflation protection and negative correlation with stocks, but am concerned about loss of NAV due to the Fed raising rates in 2022 so considering LQDI per my question above.

2. Re: UUP: The Dollar is strong and 10% UUP could do well in a variety of circumstances where stocks and bonds don't hold up. I am looking for UUP to provide positive returns in a flight to safety, moderate term uptrend, and not lose value as rates rise. In a portfolio backtest UUP shows a relative negative correlation with the US stock market so it adds diversification and hopefully consistent positive return but in any case without major volatility (kind of a bond replacement)
I would not hold LQDI for 2 reasons: in a taxable account at 33+% marginal tax rate on distributions this is very tax-inefficient, and your portfolio has more than 50% in stocks. The credit risk in corporate bonds has historically been a relatively been a poor diversifier for equity risk which dominates your portfolio. From a diversification of equity risk viewpoint nominal LTT have been the best. However, please don't get caught up in the annual volatility of LTT, it is a feature not a bug. If you think you would sell them if they lost 20+ percent of their value in a year because of an interest rate spike, then you should not hold them, use intermediate term bonds instead. The key to successfully investing in LTT is to have a long term perspective similar to what you should have with equities. I am also a CA resident in the 33.3% overall bracket. I hold LTT in taxable to 20%. For the next 10% of bonds in taxable I hold a combination of I-bonds, intermediate municipal-bonds and cash (slowly this is being converted to all I-bonds). If you are going to be above the 24% federal bracket and hold 40% bonds in taxable you may want to consider using an intermediate term muni-bond ETF/fund for half your bond position. Alternatively you could do 15% LTT, 15% TIPS (+I-bonds), 10% muni-bonds, that way you cap the assets that have unexpected inflation risk at 25% of your portfolio. I have tried to avoid TIPS in taxable because they have relatively unfavorable treatment there, I-bonds are significantly better here being tax-deferred.

I would prefer VSS to VIGI for portfolio diversification reasons, even better maybe would be AVDV+AVES there. Not sure about differences in QDI between the funds so that is also a consideration in taxable.

Right now instead of contributing to bonds in taxable you could let your asset allocation drift toward 70/30 and channel new bond contributions toward the mortgage which will give you a significantly better after-tax return than any credit-risk free bond available (other than I-bonds) right now.

I don't know enough about UUP to comment meaningfully, I don't love how expensive it is though. As a diversifier is this better than a gold ETF that can be obtained at a cheaper ER?
ivgrivchuck
Posts: 1672
Joined: Sun Sep 27, 2020 6:20 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by ivgrivchuck »

PennyWise7 wrote: Wed Dec 01, 2021 2:28 am 10% iShares Inflation Hedged Corporate Bond ETF (LQDI) (.18%)
Corporate bonds in taxable are tax-inefficient. It's usually better to go for treasuries/TIPS (or munis in high tax brackets) and increase the equity exposure slightly. This results in a similar risk profile, but better tax efficiency.
10% INVESCO DB USD Bullish ETF (UUP) (.75%)
This is a bit of a dark horse. The correlation with VT since the creation of this ETF has been -0.65, so I can certainly see where you are coming from. But keep in mind:
- Correlations during crisis can change rapidly
- The expense ratio is high
- You are losing to inflation overtime

Gold on the other hand (see also: Golden Butterfly portfolio):
- Has usually been a pretty good diversifier during crisis
- Has historically kept up with the inflation
- Is available at a reasonable expense ratio as an ETF

Now, of course nobody can predict the future...
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
ivgrivchuck
Posts: 1672
Joined: Sun Sep 27, 2020 6:20 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by ivgrivchuck »

PennyWise7 wrote: Wed Dec 01, 2021 2:28 am 1. I am considering holding LTT, nominals, (VGLT) for deflation protection and negative correlation with stocks, but am concerned about loss of NAV due to the Fed raising rates in 2022 so considering LQDI per my question above.
The long term historical correlations between stocks and nominal LTTs has been zero. There have also been long periods of positive correlation. So, be careful. Still even with zero correlation LTTs can be a good choice if your investment horizon is long (and it probably is in your case). I can see that you already hold some long-duration TIPS, so coupling them with LTTs can be a decent choice.

If you want inflation hedge, I'd go with TIPS (that you already have) instead of LQDI and increase your equity exposure slightly to compensate for the lower expected return.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by PennyWise7 »

ivgrivchuck wrote: Sat Dec 04, 2021 12:01 am
PennyWise7 wrote: Wed Dec 01, 2021 2:28 am 1. I am considering holding LTT, nominals, (VGLT) for deflation protection and negative correlation with stocks, but am concerned about loss of NAV due to the Fed raising rates in 2022 so considering LQDI per my question above.
The long term historical correlations between stocks and nominal LTTs has been zero. There have also been long periods of positive correlation. So, be careful. Still even with zero correlation LTTs can be a good choice if your investment horizon is long (and it probably is in your case). I can see that you already hold some long-duration TIPS, so coupling them with LTTs can be a decent choice.

If you want inflation hedge, I'd go with TIPS (that you already have) instead of LQDI and increase your equity exposure slightly to compensate for the lower expected return.
Appreciate your thoughts on this. Couple of points to share and a question :

1. I like the idea of eliminating LQDI due to its correlation with stocks. I am tempted to replace it with VGLT for the diversification. However, i need to consider whether I can hold on for 20% drop in value. Would rather not, but for 10% of the portfolio it should be OK, considering other parts will be ok during that time, and intermediate treasuries don't do much in terms of a bounce in a correction.

2. For the fixed income/alternative 40% of the portfolio does this make sense (effective duration is 15 years)?
10% VGLT (negative correlation with stock market, age 49 seems appropriate duration)
10% LTPZ ( inflation protection, at age 49 this would seem to match my horizon)
10% SCHP (this one is to lower the duration a bit and capture more correlation with change in CPI)
10% UUP (not volatile, negative correlation with stock market, mid-term bond replacement)
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by PennyWise7 »

ivgrivchuck wrote: Fri Dec 03, 2021 11:48 pm
PennyWise7 wrote: Wed Dec 01, 2021 2:28 am 10% iShares Inflation Hedged Corporate Bond ETF (LQDI) (.18%)
Corporate bonds in taxable are tax-inefficient. It's usually better to go for treasuries/TIPS (or munis in high tax brackets) and increase the equity exposure slightly. This results in a similar risk profile, but better tax efficiency.
10% INVESCO DB USD Bullish ETF (UUP) (.75%)
This is a bit of a dark horse. The correlation with VT since the creation of this ETF has been -0.65, so I can certainly see where you are coming from. But keep in mind:
- Correlations during crisis can change rapidly
- The expense ratio is high
- You are losing to inflation overtime

Gold on the other hand (see also: Golden Butterfly portfolio):
- Has usually been a pretty good diversifier during crisis
- Has historically kept up with the inflation
- Is available at a reasonable expense ratio as an ETF

Now, of course nobody can predict the future...
I looked into munis, and for a 1-2% return its hardly worth it, but I will consider it if I am in a much higher tax bracket.

I will eliminate the LQDI and go with treasuries and TIPS combo.

Gold vs UUP: I looked into IAU (gold) as a replacement for UUP and came away with the impression that it is more volatile than UUP which is deterrent as I am looking for a relatively stable mid-term replacement for a portion of treasuries. I also see that IAU and UUP appear negatively correlate, not always, but when one is doing well the other is not. So, they would cancel each other out. Also, not a huge fan of gold, certainly not 10% due to its volatility and admittedly I don't know much about it, but it appears speculative. I could do 5% IAU and 5% UUP, but fairly insignificant at that point and may cancel each other out.
Topic Author
PennyWise7
Posts: 115
Joined: Mon Nov 16, 2020 8:13 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by PennyWise7 »

slicendice wrote: Fri Dec 03, 2021 10:10 pm
PennyWise7 wrote: Wed Dec 01, 2021 2:28 am Greetings! I recently received an in kind transfer of new ETFs as part of a business transaction which I am reallocating into a plan I can live with. I decided to sell some of the ETFs taking the cap gains. My goal is to diversify the portfolio and protect against inflation. Appreciate how much this board has helped me and would value your feedback on this plan. Thank you for your help.

Emergency funds: Yes

Debt: $350k mortgage on an investment property at 3.25% interest

Tax Filing Status: Single

Tax Rate: 2020 24% Federal, 9% State / 2021 might be in a higher bracket 32% Federal

State of Residence: CA

Age: 49

Desired Asset allocation: 60% stocks / 40% bonds
Desired International allocation: 33% of stocks

Approximate size of total portfolio (7 figures)

Current retirement assets

ROTH IRA
3.5% Vanguard Real Estate Index VNQ (.12%)

SEP IRA
2.0% Vanguard Real Estate Index (VNQ) (.12%)

Taxable

29% Invesco S&P 500 Equal Weight ETF (RSP) (.20%)
6% Vanguard Total Stock Market (VTI) (.03%)
17% Vanguard International Dividend Appreciation ETF (VIGI) (.20%)
2.5% Vanguard FTSE All World Ex US Small CAP ETF (VSS) (.11%)
10% Schwab U.S. TIPS ETF (SCHP) (.05%)
10% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (.20%)
10% iShares Inflation Hedged Corporate Bond ETF (LQDI) (.18%)
10% INVESCO DB USD Bullish ETF (UUP) (.75%)

Contributions

New annual Contributions

$22K/year SEP IRA

$ variable /monthly Taxable


Questions:

1. What do you think overall?

[EDIT]
2. Would it be better to hold Vanguard Long Term Treasuries (VGLT) instead of inflation protected corporate bonds (LQDI)?

[EDIT]
Comments:
1. I am considering holding LTT, nominals, (VGLT) for deflation protection and negative correlation with stocks, but am concerned about loss of NAV due to the Fed raising rates in 2022 so considering LQDI per my question above.

2. Re: UUP: The Dollar is strong and 10% UUP could do well in a variety of circumstances where stocks and bonds don't hold up. I am looking for UUP to provide positive returns in a flight to safety, moderate term uptrend, and not lose value as rates rise. In a portfolio backtest UUP shows a relative negative correlation with the US stock market so it adds diversification and hopefully consistent positive return but in any case without major volatility (kind of a bond replacement)
I would not hold LQDI for 2 reasons: in a taxable account at 33+% marginal tax rate on distributions this is very tax-inefficient, and your portfolio has more than 50% in stocks. The credit risk in corporate bonds has historically been a relatively been a poor diversifier for equity risk which dominates your portfolio. From a diversification of equity risk viewpoint nominal LTT have been the best. However, please don't get caught up in the annual volatility of LTT, it is a feature not a bug. If you think you would sell them if they lost 20+ percent of their value in a year because of an interest rate spike, then you should not hold them, use intermediate term bonds instead. The key to successfully investing in LTT is to have a long term perspective similar to what you should have with equities. I am also a CA resident in the 33.3% overall bracket. I hold LTT in taxable to 20%. For the next 10% of bonds in taxable I hold a combination of I-bonds, intermediate municipal-bonds and cash (slowly this is being converted to all I-bonds). If you are going to be above the 24% federal bracket and hold 40% bonds in taxable you may want to consider using an intermediate term muni-bond ETF/fund for half your bond position. Alternatively you could do 15% LTT, 15% TIPS (+I-bonds), 10% muni-bonds, that way you cap the assets that have unexpected inflation risk at 25% of your portfolio. I have tried to avoid TIPS in taxable because they have relatively unfavorable treatment there, I-bonds are significantly better here being tax-deferred.

I would prefer VSS to VIGI for portfolio diversification reasons, even better maybe would be AVDV+AVES there. Not sure about differences in QDI between the funds so that is also a consideration in taxable.

Right now instead of contributing to bonds in taxable you could let your asset allocation drift toward 70/30 and channel new bond contributions toward the mortgage which will give you a significantly better after-tax return than any credit-risk free bond available (other than I-bonds) right now.

I don't know enough about UUP to comment meaningfully, I don't love how expensive it is though. As a diversifier is this better than a gold ETF that can be obtained at a cheaper ER?
Thank you.
VSS/VIGI-I know what you mean about VSS seeming to have a diversification benefit, but running it through portfolio visualizer looking at the correlations with the US stock market, strangely VIGI has less of a correlation. Also, the potential volatility of the international small caps is a deterrent. i do own some VSS, won't sell but for the big piece of international I'm thinking VIGI might suit me best as it has an interesting/unusual mix of country exposure and appears to be a good one fund holding for international, the 7 years consecutive increase in dividends seems to be a proxy screeen for quality.

Re: Munis-the return is so small, not excited, I'll have to see how my tax situation looks. I looked at VTEB (Vanguard Munis Fed Tax exempt the return was around 1-2% after taxes.

UUP vs Gold- I looked at IAU and certainly interesting, not quite as negatively correlated with the US stock market as UUP, more volatile, but is cheaper. I think I would not be a happy camper holding 10% Gold as it has huge price swings, and too me seems speculative. Interestingly UUP and IAU appear to move in opposite directions, meaning when the Dollar is up, gold is down and vice versa. Currently, dollar is high, and gold is low, both could turn soon. Does 5% each make any sense? To me, that would effectively cancel each other out. What do you think?

LQDI-You convinced me on LQDI-I'll hold TIPS and Treasuries.

What do you think of this?
10% Schwab U.S. TIPS ETF (SCHP) (.05%)
10% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (.20%)
10% LTT (VGLT)
10% INVESCO DB USD Bullish ETF (UUP) (.75%)
slicendice
Posts: 564
Joined: Tue Sep 22, 2020 12:08 am

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by slicendice »

PennyWise7 wrote: Sat Dec 04, 2021 1:58 pm
Re: Munis-the return is so small, not excited, I'll have to see how my tax situation looks. I looked at VTEB (Vanguard Munis Fed Tax exempt the return was around 1-2% after taxes.

UUP vs Gold- I looked at IAU and certainly interesting, not quite as negatively correlated with the US stock market as UUP, more volatile, but is cheaper. I think I would not be a happy camper holding 10% Gold as it has huge price swings, and too me seems speculative. Interestingly UUP and IAU appear to move in opposite directions, meaning when the Dollar is up, gold is down and vice versa. Currently, dollar is high, and gold is low, both could turn soon. Does 5% each make any sense? To me, that would effectively cancel each other out. What do you think?

LQDI-You convinced me on LQDI-I'll hold TIPS and Treasuries.

What do you think of this?
10% Schwab U.S. TIPS ETF (SCHP) (.05%)
10% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (.20%)
10% LTT (VGLT)
10% INVESCO DB USD Bullish ETF (UUP) (.75%)
In general bonds are a hold-your nose when you buy proposition right now. If you are above the 24% tax bracket and live in CA, the CA municipal bonds are what you want a chunk of in taxable.

I keep wondering if you really need that much TIPS exposure at this point. You are still accumulating, You have a significant (roughly equivalent to the size of your bond portfolio) negative nominal bond (mortgage) on a real investment asset which is a strong hedge against high inflation, and you are still accumulating. Perhaps if you are renting your residence that would offset the inflation protection afforded by your rental property, but that is not clear.

You seem averse to the holding individual volatile assets in your portfolio. I would be leery of holding long term bonds then, because their volatility is almost comparable to stocks. If your long term treasury position declined by 30% over the course of the next year or 2 (certainly possible) would you find yourself willing to buy into that decline to maintain your desired exposure? If yes then (in taxable):

15% LTT
10% CA LT municipal bond fund (if you are at Vanguard they have a good one)
5% SCHP (and/or I-bonds)
10% either more SCHP or alternatives of your choice.

Gold is speculative, negative expected return asset (like government bonds right now) however it marches to it's own beat and is volatile, these 2 properties are good things for the volatility of the portfolio as a whole. In addition to IAU there are several cheaper alternatives GLDM, SGOL, AAAU. I am a similar age to you and in the accumulation stage still. I own no gold, but am considering building a 15% position in the few years before retirement.

If the volatility of long term bonds bothers you then substitute Intermediate treasuries (VGIT) and Intermeditate CA muni funds for the long term bond positions above.
ivgrivchuck
Posts: 1672
Joined: Sun Sep 27, 2020 6:20 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by ivgrivchuck »

PennyWise7 wrote: Sat Dec 04, 2021 1:44 pm I looked into munis, and for a 1-2% return its hardly worth it, but I will consider it if I am in a much higher tax bracket.
To be clear: Before taxes munis have a worse return/risk ratio than treasuries, but if you are in a high tax bracket (>30% federal), it becomes profitable.
I will eliminate the LQDI and go with treasuries and TIPS combo.
Good choice!
Gold vs UUP: I looked into IAU (gold) as a replacement for UUP and came away with the impression that it is more volatile than UUP which is deterrent as I am looking for a relatively stable mid-term replacement for a portion of treasuries. I also see that IAU and UUP appear negatively correlate, not always, but when one is doing well the other is not. So, they would cancel each other out. Also, not a huge fan of gold, certainly not 10% due to its volatility and admittedly I don't know much about it, but it appears speculative. I could do 5% IAU and 5% UUP, but fairly insignificant at that point and may cancel each other out.
It's only 10% of your portfolio, so I wouldn't worry too much about this. As I said UUP is a bit of a dark horse, but it can be an exotic flavor in your portfolio.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
ivgrivchuck
Posts: 1672
Joined: Sun Sep 27, 2020 6:20 pm

Re: Portfolio Review/(60/40-LTT or Inflation Hedged Bonds?)

Post by ivgrivchuck »

PennyWise7 wrote: Sat Dec 04, 2021 1:58 pm What do you think of this?
10% Schwab U.S. TIPS ETF (SCHP) (.05%)
10% PIMCO 15+ Year U.S. TIPS Index Exchange-Traded Fund (LTPZ) (.20%)
10% LTT (VGLT)
10% INVESCO DB USD Bullish ETF (UUP) (.75%)
It's fine as long as you can mentally handle the volatility in VGLT/LTPZ. If you feel like that you can't handle it, choose etfs with a shorter duration.

And as discussed UUP is a dark horse, that I personally wouldn't use (I would probably purchase a MYGA in your shoes), but I wouldn't be too concerned about it either...
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
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