Why not 100% PSLDX? [PIMCO StocksPLUS Long Duration Fund]

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
bgf
Posts: 2084
Joined: Fri Nov 10, 2017 8:35 am

Re: Why not 100% PSLDX?

Post by bgf »

DMoogle wrote: Mon Feb 08, 2021 12:00 pm
bgf wrote: Mon Feb 08, 2021 11:47 am
muffins14 wrote: Mon Feb 08, 2021 11:03 am Well NTSX holds 90% as S&P 500 and PSLDX holds options to track 100% S&P 500, so, yes, you only get about 11% more equity exposure by choosing PSLDX, and you get more long-term bond exposure and credit exposure because NTSX is shorter-term and Treasury-only

People say it’s a 100% equity replacement because it holds exposure equivalent to 100% S&P 500, PLUS the long-duration bond exposure, it’s why they assigned the naming convention to the fund type
thanks, maybe this strategy is just over my head a bit.

for me personally, if i wanted 10% more exposure to equities, i could just sell my 10% bonds and go 100% equities. bingo.

or, if i wanted to keep my bonds but gain leverage, i could buy futures/call options. or i could open a margin account and just borrow 10% of my holdings.

these seem like pretty simple, straightforward options.

but PSLDX doesn't do anything like those options because PSLDX buys a TON of bonds and then adds a TON of leverage (2x). it seems like a very roundabout strategy for someone hoping to gain some more equity exposure and a very odd strategy for a bond investor.

am i making an error by thinking about this as a sum of its parts? does it make more sense to simply look at how the fund behaves, eg., volatility, sharpe ratio, etc?
In the simplest terms: At its very core, a stock+bond portfolio will (should) have greater risk-adjusted returns than an all-stock portfolio. So why doesn't everyone do stock+bond portfolios? The answer, as you likely intuitively know, is that while risk-adjusted returns may be superior, absolute returns are lower.

Leverage is a way to get the best of both worlds; the additional diversification from a stock+bond portfolio, while matching or exceeding the returns of an all-equity portfolio. It's not riskless; in the unlikely (but not impossible) event that both stocks AND bonds get hammered at the same time, the leveraged portfolio will get hit hard. Depending on your risk appetite, it may be worth it. To me, it is.
it seems to me that PSLDX makes the most sense as one's only holding. is that how you own it? or do you hold it has a portion of an overall portfolio? if so, did you use it as a tool to reach your target stock/bond allocation? or did you see it merely as an alternative strategy to potentially juice equity returns?
“TE OCCIDERE POSSUNT SED TE EDERE NON POSSUNT NEFAS EST"
jarjarM
Posts: 2502
Joined: Mon Jul 16, 2018 1:21 pm

Re: Why not 100% PSLDX?

Post by jarjarM »

firebirdparts wrote: Mon Feb 08, 2021 11:58 am
bgf wrote: Mon Feb 08, 2021 10:30 am
many people have been saying its essentially a '100% stock" replacement, e.g., how to handle it in your asset allocation breakdown, but when i actually lay it all out, it looks like a method for gaining FAR MORE bond exposure while only getting a minimal increase equity exposure.

im not making any comment on the strategy itself, i just want to make sure that i am accurately seeing what the strategy is.

is that correct or a mischaracterization? or just plain wrong?
So I think there is only one possible meaning to the oft-repeated question, and that is if you look back on today 30 years from now, how will you wish you had rebalanced? That is where the action is. So that is why I answer it the way I do. I have no time machine, but people keep asking.

If you want to consider it 100% stocks + 100% bonds, obviously it's pretty easy to do and perfectly acceptable, but it takes on extra importance when placed in the context of a portfolio that's not 100% PSLDX.
+1, this is how I see it too. PSLDX serve as my core holding in IRAs and I take on additional tilt via other positions but this allows me 100% exposure to both bond and stock without margin and should give me better risk adjusted return going forward.
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

Re: Why not 100% PSLDX?

Post by DMoogle »

bgf wrote: Mon Feb 08, 2021 1:09 pmit seems to me that PSLDX makes the most sense as one's only holding. is that how you own it? or do you hold it has a portion of an overall portfolio? if so, did you use it as a tool to reach your target stock/bond allocation? or did you see it merely as an alternative strategy to potentially juice equity returns?
I think there's additional opportunity for diversification via international equities. I might be mistaken, but PSLDX only holds US equities, right? I think a PSLDX+international ETF would be well-balanced.

I don't personally hold PSLDX. I'm pursuing Hedgefundie's Excellent Adventure in my IRAs, plus international funds in my 401k to balance the international. For my taxable accounts, my current strategy is NTSX+VXUS. NTSX seems to me like a dumbed-down version of PSLDX, only with 90% equities+60% bonds and (more importantly) lower management fees and with better taxation properties. VXUS for the international exposure, and I leverage via margin at ~1.2x. I'm aiming for 20% of equity exposure to be international across all portfolios, but I'm not being super scientific about it. Que sera sera.

Take it with a grain of salt (I haven't followed this that closely), but PSLDX kind of seems like a middle ground between HFEA and NTSX. If HFEA seems too aggressive (or you want more of a "set it and forget it" solution), but NTSX isn't aggressive enough for you, it's worth considering.

Consider that ALL of these options are MUCH more aggressive than the standard recommended vanilla Bogleheads portfolios. My personal risk tolerance is VERY high. If my $700k portfolio dropped to $50k next month... I'd be pretty bummed out, but pretty far from devastated. The idea of using leverage in a personal portfolio is a relatively new concept (outside of real estate).
manlymatt83
Posts: 1286
Joined: Tue Jan 30, 2018 7:23 am

Re: Why not 100% PSLDX?

Post by manlymatt83 »

How much of one's portfolio would need to be PSLDX to make a difference? Would $10k now with dividends reinvested over 30 years make any difference? Or if one can not commit to adding to PSLDX, is it not worth having any allocation at all?
User avatar
firebirdparts
Posts: 4387
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Why not 100% PSLDX?

Post by firebirdparts »

I guess that's the other reason why people keep asking how it fits into an allocation. If you said you wanted to hold it, you have to hold it instead of something else. Will it be better than something else? Usually yes. It doesn't matter how much you have. I think given that nobody knows nothin, we would guess it'll outperform most of the mutual funds on earth. That's just a guess but it's a pretty good one.

I would be reasonable to expect $10k over 30 years would be big. I could certainly be wrong.
This time is the same
manlymatt83
Posts: 1286
Joined: Tue Jan 30, 2018 7:23 am

Re: Why not 100% PSLDX?

Post by manlymatt83 »

firebirdparts wrote: Tue Feb 09, 2021 9:52 am I guess that's the other reason why people keep asking how it fits into an allocation. If you said you wanted to hold it, you have to hold it instead of something else. Will it be better than something else? Usually yes. It doesn't matter how much you have. I think given that nobody knows nothin, we would guess it'll outperform most of the mutual funds on earth. That's just a guess but it's a pretty good one.

I would be reasonable to expect $10k over 30 years would be big. I could certainly be wrong.
I have an old traditional IRA that I'm trying to use for all of my non-VT holdings. I won't be adding to it again (likely ever), but have room for a little PSLDX in it.
rchmx1
Posts: 523
Joined: Sat Oct 26, 2019 6:38 pm

Re: Why not 100% PSLDX?

Post by rchmx1 »

firebirdparts wrote: Tue Feb 09, 2021 9:52 am I guess that's the other reason why people keep asking how it fits into an allocation. If you said you wanted to hold it, you have to hold it instead of something else. Will it be better than something else? Usually yes. It doesn't matter how much you have. I think given that nobody knows nothin, we would guess it'll outperform most of the mutual funds on earth. That's just a guess but it's a pretty good one.

I would be reasonable to expect $10k over 30 years would be big. I could certainly be wrong.
That's a good way to put it. For me, the reasoning was pretty simple, though of course with the future being unknowable there's no way to say if the reasoning will turn out to be well-founded or off-base. Do I want to devote this chunk of money to equities? Yes. Do I think that it is possible to capture the returns of the market while also bettering that with some excess returns? Yes. Do I find it a reasonable assumption that this fund will continue to capture excess returns? Yes. I dumped $10k from my Roth IRA and $10k from the solo 401k into this early summer last year, and because of the $50 purchase fee I don't expect to add to the initial investments that often. I'm content to just let them ride for the next couple decades and see how they do.
BayStater
Posts: 97
Joined: Sun Mar 29, 2020 11:57 pm

Re: Why not 100% PSLDX?

Post by BayStater »

DMoogle wrote: Mon Feb 08, 2021 1:35 pm Take it with a grain of salt (I haven't followed this that closely), but PSLDX kind of seems like a middle ground between HFEA and NTSX. If HFEA seems too aggressive (or you want more of a "set it and forget it" solution), but NTSX isn't aggressive enough for you, it's worth considering.
I'm not bringing anything new to the table, but just to summarize:
  • It's the middle ground for leverage: HFEA (3x), PSLDX (2x), NTSX (1.5x)
  • It's also the middle ground for fees: HFEA (0.98%), PSLDX (0.59%), NTSX (0.20%)
  • Leverage & expenses are not the only difference to consider. PSLDX's bonds are actively managed and are not just treasury bonds.
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

Re: Why not 100% PSLDX?

Post by DMoogle »

BayStater wrote: Tue Feb 09, 2021 11:46 am
DMoogle wrote: Mon Feb 08, 2021 1:35 pm Take it with a grain of salt (I haven't followed this that closely), but PSLDX kind of seems like a middle ground between HFEA and NTSX. If HFEA seems too aggressive (or you want more of a "set it and forget it" solution), but NTSX isn't aggressive enough for you, it's worth considering.
I'm not bringing anything new to the table, but just to summarize:
  • It's the middle ground for leverage: HFEA (3x), PSLDX (2x), NTSX (1.5x)
  • It's also the middle ground for fees: HFEA (0.98%), PSLDX (0.59%), NTSX (0.20%)
  • Leverage & expenses are not the only difference to consider. PSLDX's bonds are actively managed and are not just treasury bonds.
I'd agree with the summary, plus add that NTSX is substantially more tax-efficient than the other two if considering these instruments for taxable accounts. I think someone posted some relevant data in either this thread or the other one, not entirely sure where though.
drk77
Posts: 17
Joined: Sun Sep 24, 2017 11:33 pm

Re: Why not 100% PSLDX?

Post by drk77 »

Hello everyone

I am interested in converting to PSLDX in my Roth account.

I am fairly aware of how this fund intends to work, but I have an EXREME newbie question here...

If I look at the price chart since 2007, the price just seems to fluctuate between 4-10 dollars and 2007 marked the high point.

Can someone explain what I am missing?

Thank you.
SVT
Posts: 387
Joined: Mon Oct 13, 2008 8:56 am

Re: Why not 100% PSLDX?

Post by SVT »

drk77 wrote: Thu Feb 11, 2021 5:00 am Hello everyone

I am interested in converting to PSLDX in my Roth account.

I am fairly aware of how this fund intends to work, but I have an EXREME newbie question here...

If I look at the price chart since 2007, the price just seems to fluctuate between 4-10 dollars and 2007 marked the high point.

Can someone explain what I am missing?

Thank you.
So why are you interested in converting to PSLDX?
occambogle
Posts: 953
Joined: Thu Dec 12, 2019 3:58 am

Re: Why not 100% PSLDX?

Post by occambogle »

drk77 wrote: Thu Feb 11, 2021 5:00 am
If I look at the price chart since 2007, the price just seems to fluctuate between 4-10 dollars and 2007 marked the high point.

Can someone explain what I am missing?

Thank you.
You’re only looking at the price. You’re not considering the annual distributions/dividends which are very large for PSLDX (and why it isn’t advisable to use in a taxable account). If you use Portfolio Visualizer for example it includes those distributions... for example...
User avatar
firebirdparts
Posts: 4387
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Why not 100% PSLDX?

Post by firebirdparts »

drk77 wrote: Thu Feb 11, 2021 5:00 am Hello everyone

I am interested in converting to PSLDX in my Roth account.

I am fairly aware of how this fund intends to work, but I have an EXREME newbie question here...

If I look at the price chart since 2007, the price just seems to fluctuate between 4-10 dollars and 2007 marked the high point.

Can someone explain what I am missing?

Thank you.
X2 - pretty much all the profits are distributed. That's because the stock returns are mostly paid in cash from counterparties, and the bond returns are mostly going to be the dividends. The bond portfolio is "real" and the stock side of it is the derivative part (this is opposite of NTSX, if you're interested).
This time is the same
manlymatt83
Posts: 1286
Joined: Tue Jan 30, 2018 7:23 am

Re: Why not 100% PSLDX?

Post by manlymatt83 »

I have my PSLDX in a tax advantaged account I no longer contribute to, alongside a few other holdings.

I’d like to increase my allocation to those few other holdings a tad, if possible. For example, I own 97 shares of a stock, and I’d like to get to 100 (mental goal) in the event I want to sell a covered call against it in the future.

Instead of selling PSLDX, I’m thinking that I’ll turn off dividend reinvestment for a year or two, such that I’ll have some extra cashflow coming into the IRA to put into those other holdings. Once I get where I want to be, I’ll re-enable automated dividend reinvestment.

Given that Schwab charges $49/trade for PSLDX but dividend reinvestment is free, I just wanted to make sure this off/on plan will work.
yellowJackets
Posts: 10
Joined: Mon Feb 08, 2021 1:19 pm

Re: Why not 100% PSLDX?

Post by yellowJackets »

so the cheapest place to buy PSLDX in IRA is E*Trade. Schwabs 49.99 seems somewhat expensive when I want to DCA as well
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

Re: Why not 100% PSLDX?

Post by DMoogle »

yellowJackets wrote: Thu Feb 11, 2021 12:30 pm so the cheapest place to buy PSLDX in IRA is E*Trade. Schwabs 49.99 seems somewhat expensive when I want to DCA as well
Interactive Brokers is lesser of 3% * trade value or $14.95. https://www1.interactivebrokers.com/en/ ... n&p=funds1
jarjarM
Posts: 2502
Joined: Mon Jul 16, 2018 1:21 pm

Re: Why not 100% PSLDX?

Post by jarjarM »

manlymatt83 wrote: Thu Feb 11, 2021 10:50 am I have my PSLDX in a tax advantaged account I no longer contribute to, alongside a few other holdings.

I’d like to increase my allocation to those few other holdings a tad, if possible. For example, I own 97 shares of a stock, and I’d like to get to 100 (mental goal) in the event I want to sell a covered call against it in the future.

Instead of selling PSLDX, I’m thinking that I’ll turn off dividend reinvestment for a year or two, such that I’ll have some extra cashflow coming into the IRA to put into those other holdings. Once I get where I want to be, I’ll re-enable automated dividend reinvestment.

Given that Schwab charges $49/trade for PSLDX but dividend reinvestment is free, I just wanted to make sure this off/on plan will work.
Dividend reinvestment does not result in transaction charges so that should be okay.
isubrama
Posts: 83
Joined: Sun Apr 12, 2020 12:27 pm

Re: Why not 100% PSLDX?

Post by isubrama »

yellowJackets wrote: Thu Feb 11, 2021 12:30 pm so the cheapest place to buy PSLDX in IRA is E*Trade. Schwabs 49.99 seems somewhat expensive when I want to DCA as well
How much E*Trade charges ? Ally fee is $9.95
FIRE55
Posts: 59
Joined: Tue Dec 15, 2020 6:09 pm

Re: Why not 100% PSLDX?

Post by FIRE55 »

DMoogle wrote: Tue Feb 09, 2021 11:57 am NTSX is substantially more tax-efficient than the other two if considering these instruments for taxable accounts.
I've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
User avatar
cos
Posts: 506
Joined: Fri Aug 23, 2019 7:34 pm
Location: Boston
Contact:

Re: Why not 100% PSLDX?

Post by cos »

FIRE55 wrote: Thu Feb 11, 2021 2:31 pm
DMoogle wrote: Tue Feb 09, 2021 11:57 am NTSX is substantially more tax-efficient than the other two if considering these instruments for taxable accounts.
I've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
Yes and yes.
User avatar
Raraculus
Posts: 336
Joined: Sat Jul 20, 2019 10:43 am

Re: Why not 100% PSLDX?

Post by Raraculus »

FIRE55 wrote: Thu Feb 11, 2021 2:31 pmI've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
I'm not sure about this one. Look at this link and click on the Dividends and Distributions tab.

Schwab's PSLDX Summary

As you can see PSLDX starts out small in the 1st Quarter - 5 cents/share, 1 cent/share, and 3 cents/share. Its payouts get a little bit bigger in the 2nd Quarter. The 3rd Quarter has bigger payouts per share. The 4th Quarter is the winning quarter! :shock:

With a little planning, I guess you could rely on the 3rd and/or 4th Quarter dividends/gains to issue your desired income for the following year. You could choose to reinvest dividends for 1st/2nd/3rd quarters as they occur.
yellowJackets
Posts: 10
Joined: Mon Feb 08, 2021 1:19 pm

Re: Why not 100% PSLDX?

Post by yellowJackets »

isubrama wrote: Thu Feb 11, 2021 1:25 pm
yellowJackets wrote: Thu Feb 11, 2021 12:30 pm so the cheapest place to buy PSLDX in IRA is E*Trade. Schwabs 49.99 seems somewhat expensive when I want to DCA as well
How much E*Trade charges ? Ally fee is $9.95
I think 19.95
Winthorpe
Posts: 339
Joined: Mon Apr 13, 2009 12:29 am

Re: Why not 100% PSLDX?

Post by Winthorpe »

$8 for me to buy/sell PSLDX in my vanguard roth ira.
User avatar
climber2020
Posts: 2703
Joined: Sun Mar 25, 2012 8:06 pm

Re: Why not 100% PSLDX?

Post by climber2020 »

What market conditions would have to take place for a fund like this to tank and/or underperform an S&P500 index fund?
User avatar
cos
Posts: 506
Joined: Fri Aug 23, 2019 7:34 pm
Location: Boston
Contact:

Re: Why not 100% PSLDX?

Post by cos »

climber2020 wrote: Sat Feb 13, 2021 11:03 am What market conditions would have to take place for a fund like this to tank and/or underperform an S&P500 index fund?
Rising rates. Prolonged stagflation.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why not 100% PSLDX?

Post by Tingting1013 »

Raraculus wrote: Fri Feb 12, 2021 1:42 pm
FIRE55 wrote: Thu Feb 11, 2021 2:31 pmI've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
I'm not sure about this one. Look at this link and click on the Dividends and Distributions tab.

Schwab's PSLDX Summary

As you can see PSLDX starts out small in the 1st Quarter - 5 cents/share, 1 cent/share, and 3 cents/share. Its payouts get a little bit bigger in the 2nd Quarter. The 3rd Quarter has bigger payouts per share. The 4th Quarter is the winning quarter! :shock:

With a little planning, I guess you could rely on the 3rd and/or 4th Quarter dividends/gains to issue your desired income for the following year. You could choose to reinvest dividends for 1st/2nd/3rd quarters as they occur.
This is actually a great observation that leads to another point: it’s actually not fair to compare PSLDX performance against the S&P 500 until a full year completes.
User avatar
cos
Posts: 506
Joined: Fri Aug 23, 2019 7:34 pm
Location: Boston
Contact:

Re: Why not 100% PSLDX?

Post by cos »

Tingting1013 wrote: Sat Feb 13, 2021 12:10 pm
Raraculus wrote: Fri Feb 12, 2021 1:42 pm
FIRE55 wrote: Thu Feb 11, 2021 2:31 pmI've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
I'm not sure about this one. Look at this link and click on the Dividends and Distributions tab.

Schwab's PSLDX Summary

As you can see PSLDX starts out small in the 1st Quarter - 5 cents/share, 1 cent/share, and 3 cents/share. Its payouts get a little bit bigger in the 2nd Quarter. The 3rd Quarter has bigger payouts per share. The 4th Quarter is the winning quarter! :shock:

With a little planning, I guess you could rely on the 3rd and/or 4th Quarter dividends/gains to issue your desired income for the following year. You could choose to reinvest dividends for 1st/2nd/3rd quarters as they occur.
This is actually a great observation that leads to another point: it’s actually not fair to compare PSLDX performance against the S&P 500 until a full year completes.
Why would that be? Dividends are priced in prior to distribution.
MotoTrojan
Posts: 11259
Joined: Wed Feb 01, 2017 7:39 pm

Re: Why not 100% PSLDX?

Post by MotoTrojan »

FIRE55 wrote: Thu Feb 11, 2021 2:31 pm
DMoogle wrote: Tue Feb 09, 2021 11:57 am NTSX is substantially more tax-efficient than the other two if considering these instruments for taxable accounts.
I've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
I would confirm whether the PSLDX distribution is qualified or not. Even if the distribution is less than you would've otherwise withdrew, it may be taxed as income when you could be spending down long-term capital gains via qualified dividends and/or sales. Also this will decay your PSLDX allocation over time...
User avatar
firebirdparts
Posts: 4387
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Why not 100% PSLDX?

Post by firebirdparts »

FIRE55 wrote: Thu Feb 11, 2021 2:31 pm
DMoogle wrote: Tue Feb 09, 2021 11:57 am NTSX is substantially more tax-efficient than the other two if considering these instruments for taxable accounts.
I've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
psldx has real bonds and fake stocks. Ntsx has real stocks and fake bonds. If the real stocks don’t turn over, and they wouldn’t, then distributable capital gains would not be generated. psldx fake stocks have to settle up in cash.
This time is the same
wrongfunds
Posts: 3187
Joined: Tue Dec 21, 2010 2:55 pm

Re: Why not 100% PSLDX?

Post by wrongfunds »

People have been talking about mechanics of either getting in to PSLDX or figuring out via back testing mix of other ETFs which mimics the performance of PSLDX.

I want to fundamentally understand how any leveraged investment can have double the upside potential but normal downside potential. Yes, Hedgiefunds made that claim but why does everybody buy in to it?

I mean double the gains with the same risk? Where do I sign up? Why not double it again and make that quadruple gains with the same risk? All we have to do is to figure out the ratio of UPRO/TMF/BLV etc via back testing it. Or better take the PSLDX and add TFM/BLV etc to it again double the gains of that without increasing the risk aka downside potential.

I apologize if this had been already covered but at least after reading the first 7 pages, there was no explanation as to where this "Free Lunch" is coming from.

The other 18-100% per year gain topic, OP should be reading this instead!
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Why not 100% PSLDX?

Post by Marseille07 »

wrongfunds wrote: Sun Feb 14, 2021 6:19 pm People have been talking about mechanics of either getting in to PSLDX or figuring out via back testing mix of other ETFs which mimics the performance of PSLDX.

I want to fundamentally understand how any leveraged investment can have double the upside potential but normal downside potential. Yes, Hedgiefunds made that claim but why does everybody buy in to it?

I mean double the gains with the same risk? Where do I sign up? Why not double it again and make that quadruple gains with the same risk? All we have to do is to figure out the ratio of UPRO/TMF/BLV etc via back testing it. Or better take the PSLDX and add TFM/BLV etc to it again double the gains of that without increasing the risk aka downside potential.

I apologize if this had been already covered but at least after reading the first 7 pages, there was no explanation as to where this "Free Lunch" is coming from.

The other 18-100% per year gain topic, OP should be reading this instead!
There's no free lunch and 2x does not boost your return by 2x, more like 1.3x or so. It's a decent bet if you think we have longer bull markets than bear markets. The real issue is PSLDX plunges really hard when SHTF like 2008 strikes again.
wrongfunds
Posts: 3187
Joined: Tue Dec 21, 2010 2:55 pm

Re: Why not 100% PSLDX?

Post by wrongfunds »

But why stop at 2X, why not 4X or 8X etc? Why HFEA is *only* doing 3X?

What I can not grasp is that the claim is being made to the effect that you can get better returns and less risks than 100% stock portfolio using this leveraged method.
Jags4186
Posts: 8198
Joined: Wed Jun 18, 2014 7:12 pm

Re: Why not 100% PSLDX?

Post by Jags4186 »

wrongfunds wrote: Sun Feb 14, 2021 6:38 pm But why stop at 2X, why not 4X or 8X etc? Why HFEA is *only* doing 3X?

What I can not grasp is that the claim is being made to the effect that you can get better returns and less risks than 100% stock portfolio using this leveraged method.
Because daily circuit breaker halts kick in at -20%, or -60% for a 3x LETF. If one had 8x leverage they could be wiped out in a day.
Marseille07
Posts: 16054
Joined: Fri Nov 06, 2020 12:41 pm

Re: Why not 100% PSLDX?

Post by Marseille07 »

wrongfunds wrote: Sun Feb 14, 2021 6:38 pm But why stop at 2X, why not 4X or 8X etc? Why HFEA is *only* doing 3X?

What I can not grasp is that the claim is being made to the effect that you can get better returns and less risks than 100% stock portfolio using this leveraged method.
Well the claim is true so long as we have a bull market. That's the key, a situational phenomenon that can last for years.
jarjarM
Posts: 2502
Joined: Mon Jul 16, 2018 1:21 pm

Re: Why not 100% PSLDX?

Post by jarjarM »

wrongfunds wrote: Sun Feb 14, 2021 6:38 pm But why stop at 2X, why not 4X or 8X etc? Why HFEA is *only* doing 3X?

What I can not grasp is that the claim is being made to the effect that you can get better returns and less risks than 100% stock portfolio using this leveraged method.
That’s because many (but not all) understand there’s an increase risk with leverage. In the HFEA thread, it was stated on the original OP that the investment was more risky and no one should put their entire investment portfolio into the strategy. There were literally hundreds of pages of discussion on what kind of risk involved (interest rate risk a la 1970s to early 1980s, 1987 type crash, circuit breaker and etc). As for PSLDX, it’s basically 50/50 stock/bond (which is often recommended by BH here) leverage up 2x. There’s plenty of warning here about high ER and interest rate risk and borrowing cost. As noted by many involved in the discussion, there’s no free lunch but one can make informed decisions after reading all the posts, or so I hope.
bling
Posts: 1452
Joined: Sat Jan 21, 2012 11:49 am

Re: Why not 100% PSLDX?

Post by bling »

wrongfunds wrote: Sun Feb 14, 2021 6:38 pm But why stop at 2X, why not 4X or 8X etc? Why HFEA is *only* doing 3X?

What I can not grasp is that the claim is being made to the effect that you can get better returns and less risks than 100% stock portfolio using this leveraged method.
a stock/bond portfolio performs better than an all-stock portfolio on a risk-adjusted basis. so the idea is you take a balanced portfolio and then you leverage it up until you get the expected return that you want. it's not a free lunch, you have to pay for the leverage. if you're right, in that the future is like the past, you will be rewarded. if you are wrong, you will be very sorry.

HFEA made out alright last year. but if you look at the details, UPRO lost 75% of its value from peak to trough. what if the TMF didn't come to save the day? what if they fell instead? you're basically wiped out.

daily leverage ETFs like UPRO/TMF also lose in sideways markets. so not only are you paying for leverage, your balance is lower than unleveraged as well.
wrongfunds
Posts: 3187
Joined: Tue Dec 21, 2010 2:55 pm

Re: Why not 100% PSLDX?

Post by wrongfunds »

Can you confirm

- PSDLX has more gains than AA of 100% stock
- PSDLX has AA of 50:50 stock:bond
- 100% stock has higher risk and lower return than PSDLX

I just do not understand how that is possible.

If you say the risk is low as long as stocks go up; my pet answer to that has always been "Just buy the stock which only goes up; don't buy the stock which goes down". :oops:
bling
Posts: 1452
Joined: Sat Jan 21, 2012 11:49 am

Re: Why not 100% PSLDX?

Post by bling »

wrongfunds wrote: Sun Feb 14, 2021 7:34 pm Can you confirm

- PSDLX has more gains than AA of 100% stock
- PSDLX has AA of 50:50 stock:bond
- 100% stock has higher risk and lower return than PSDLX

I just do not understand how that is possible.

If you say the risk is low as long as stocks go up; my pet answer to that has always been "Just buy the stock which only goes up; don't buy the stock which goes down". :oops:
how's that any different from regular investing? the only reason why we invest at all is to beat inflation. you can be ultra conservative and be 100% bonds just to barely beat inflation, or you can take some risks and add some stocks. leverage juices it up even more for higher risk/reward.

to use a different example, you can take a HELOC on your home, pay the 2% interest, and then invest it all in the market hoping that it will beat that 2%. you collect the difference. if you're right, you're happy. if you're wrong, you now owe more than you lost.

meanwhile, the lender is happy making a guaranteed 2% off of you.
garlandwhizzer
Posts: 3562
Joined: Fri Aug 06, 2010 3:42 pm

Re: Why not 100% PSLDX?

Post by garlandwhizzer »

I think PSLDX is an interesting approach. It focuses on only two rock solid asset classes--long US bonds and the S&P 500--both of which have done exceptionally well for decades. It uses active tools aiming to improve its risk/reward characteristics including derivatives on the S&P 500 and active management of the bond portfolio. We've basically had a massive 40 year bull market in long bonds and a massive bull market in the S&P 500 for the 10 year lifetime of this fund, one reason it has done so well. The last 10 years has been an ideal setup for this fund to produce fabulous risk adjusted results. It backtests beautifully. If that trend of outperformance continues in their 2 selected asset classes, and if management continues to make good bets on S&P 500 derivatives like swaps and futures contracts, and if their active bond management continues to thrive, PSLDX will very likely continue its run of massive risk adjusted performance.

Outperformance usually doesn't happen in the absence of increased risk but that risk has not shown up in the 10 year life of this fund. The exact opposite, all reward, no risk. That doesn't mean that risk will remain in its grave. Risks going forward may include taking the wrong side on S&P 500 derivatives contracts which like all active management can fail from time to time, default risk in their bond portfolio which includes 27% corporate bonds, a majority of which are BBB rated, and/or a shift in equity outperformance from LC and growth which dominates the S&P 500 to value and SC in the US. There is also the risk of a shift of outperformance away from the US (which has dominated the entire 10 years) toward INTL which has up to now been a big time loser. So the fund has done great but past results but like everything else in investing remain unknown. All of the asset classes it currently holds are IMO overbought at present and have been overbought for a long time. No investment strategy is bullet proof forever.

As for what vehicles to choose if your primary goal is outperformance I think exposure to PSLDX or NTSX are things to consider seriously. I believe both now carry a lot more risk than they've shown in the past, but all attempts to increase returns tend to do that. Personally, I will not bite on the PSLDX bait. I am quite content with a standard portfolio without derivatives, without leverage, and without substantial BBB bond exposure, all of which have potential downsides that haven't shown up as well as upsides that have shown up. A lot of investing results depend on whether the market wind blows your way or against you. A long period of having a strong investing tailwind fills us with confidence and optimism about the future while a long period investing headwind (2000 -2010, 1969 -1982) does the opposite. Paradoxically the best time to invest for future returns is usually the point of maximum pessimism. Likewise the worst time to invest for future returns is usually the point of maximum optimism which is IMO not far from where LTB and the S&P 500 are on the sentiment scale now.

Garland Whizzer
jarjarM
Posts: 2502
Joined: Mon Jul 16, 2018 1:21 pm

Re: Why not 100% PSLDX?

Post by jarjarM »

wrongfunds wrote: Sun Feb 14, 2021 7:34 pm Can you confirm

- PSDLX has more gains than AA of 100% stock
- PSDLX has AA of 50:50 stock:bond
- 100% stock has higher risk and lower return than PSDLX

I just do not understand how that is possible.

If you say the risk is low as long as stocks go up; my pet answer to that has always been "Just buy the stock which only goes up; don't buy the stock which goes down". :oops:
Here is some stats on PSLDX:
https://www.schwab.com/public/schwab/in ... ol%3DPSLDX

AA is 47/53 right now.
PSLDX had better return than sp500 in the last 10+years, turbocharged by the bond returns, that’s not guarantee going forward.
PSLDX volatility had been dampened by its bond holdings in previous market fluctuations but not guarantee going forward. Given the current low interest rate environment, there are legitimate concern that it will lack sp500 performance (and it has ytd). So yes, those of us who invested in it does understand there’s no free lunch and there’s genuine risk to be concerned.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why not 100% PSLDX?

Post by Tingting1013 »

wrongfunds wrote: Sun Feb 14, 2021 7:34 pm Can you confirm

- PSDLX has more gains than AA of 100% stock
- PSDLX has AA of 50:50 stock:bond
- 100% stock has higher risk and lower return than PSDLX

I just do not understand how that is possible.

If you say the risk is low as long as stocks go up; my pet answer to that has always been "Just buy the stock which only goes up; don't buy the stock which goes down". :oops:
It’s 100% stocks
+ 100% long bonds
- 100% short bonds (this is the borrowing cost)

Basically during normal times you are collecting the spread between long and short bonds as the outperformance above a regular stock fund.

Also you are rebalancing automatically when stocks crash and long bonds spike.
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

Re: Why not 100% PSLDX?

Post by DMoogle »

wrongfunds wrote: Sun Feb 14, 2021 7:34 pm Can you confirm

- PSDLX has more gains than AA of 100% stock
The expected gains are higher than 100% stock.
wrongfunds wrote: Sun Feb 14, 2021 7:34 pm- PSDLX has AA of 50:50 stock:bond
I believe this is roughly true.
wrongfunds wrote: Sun Feb 14, 2021 7:34 pm- 100% stock has higher risk and lower return than PSDLX
Higher risk is debatable. PSLDX, and any leveraged approach, absolutely has higher tail-end risk. If you look at the past 50+ years of HFEA, you'll see that that tail-end risk... hasn't really showed up yet. One of the reasons is that it's been a bull market for bonds pretty much over that entire period of time.

There's clearly a concept you're missing here though... that concept is risk:reward ratio and risk-adjusted returns. Think about this: a stock+bond portfolio has better risk-adjusted returns than 100% stocks. So why are 100% stock portfolios recommended by so many? Very simple: the absolute return is greater than a stock+bond portfolio (assuming no leverage on both), and the risk is acceptable. But what if we were to use leverage on the stock+bond portfolio? We could create a portfolio that has equal return to 100% stocks with less risk, or a portfolio that has similar risk with greater return, or something in-between. Well... that's EXACTLY what these kinds of portfolios aim to achieve.

There is a free lunch here. It's called diversification. It's also important to note that, historically, bonds have a slightly negative correlation with stocks, which is ideal for diversification.
User avatar
firebirdparts
Posts: 4387
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Why not 100% PSLDX?

Post by firebirdparts »

wrongfunds wrote: Sun Feb 14, 2021 7:34 pm - 100% stock has higher risk and lower return than PSDLX
Not this one.

100% stock has lower return in the past than PSLDX. Risk is pretty much equal, for talking purposes.

*How is this possible?*

In the past, the return of their actively managed long term bond portfolio handsomely outperformed the borrowing cost of the overall portfolio.

Extra info: Look at the benchmark for PSLDX and think it over.

Extra Extra info: I can think of one potential risk that hurts PSLDX twice as much. That is the risk of rising interest rates. Keep in mind here this would be a very dull event, not a giant meteor, not a sharknado, not Godzilla. Just some boring old interest rates.
Last edited by firebirdparts on Mon Feb 15, 2021 8:26 am, edited 2 times in total.
This time is the same
User avatar
firebirdparts
Posts: 4387
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Why not 100% PSLDX?

Post by firebirdparts »

wrongfunds wrote: Sun Feb 14, 2021 6:19 pm I want to fundamentally understand how any leveraged investment can have double the upside potential but normal downside potential. Yes, Hedgiefunds made that claim but why does everybody buy in to it?
I think the answer to the practical question is diversification, but you're also fundamentally wrong. That should make you feel better. I would never go around saying leverage has double the upside potential and normal downside potential. That's crazy. I try always not to talk in jibber jabber and platitudes, and to say such a thing would definitely set off my jibber-jabber alarm.

There is plenty of risk in PSLDX. Plenty. But when you look at the past, you won't see that, because it didn't occur. People who think volatility *is* the actual risk might say "well I don't see the risk right here on this paper" but these people are not understanding how any of this works.
This time is the same
wrongfunds
Posts: 3187
Joined: Tue Dec 21, 2010 2:55 pm

Re: Why not 100% PSLDX?

Post by wrongfunds »

Isn't the probability of interest rate going up is higher than the probability of interest rate going down? Now I do understand the recent history does not agree with that assertion as the interest rates have been steadily dropping but they are almost approaching zero.

Was I wrong in interpreting HF's assertion of double the upside potential with normal risk part? I thought he mentioned something like that in the early replies.

May be I should say "so far PSLDX has been free lunch" but that is only because the downside risk has not yet materialized.

I am contrasting this topic against say GME or the NanBan investment topic and I am really shocked at the positive reception this one is getting as compared to the other two. Being able to back test specific mix of UPRO/TMF/BLV to mimic the past PSLDX performance also impresses me. Is there a valid theory behind that specific mix? Could I just run trillion simulations to come up with a different mix which will show how it could have given even better results than PSLDX? And if so, should I use that mix going forward?

I will be the first person to tell you when I do not understand something but at least I know what I don't know and I know enough to know when too many numbers are being thrown at me to impress me.
Tingting1013
Posts: 1594
Joined: Mon Aug 24, 2020 5:44 pm

Re: Why not 100% PSLDX?

Post by Tingting1013 »

wrongfunds wrote: Mon Feb 15, 2021 10:13 am Isn't the probability of interest rate going up is higher than the probability of interest rate going down? Now I do understand the recent history does not agree with that assertion as the interest rates have been steadily dropping but they are almost approaching zero.

Was I wrong in interpreting HF's assertion of double the upside potential with normal risk part? I thought he mentioned something like that in the early replies.

May be I should say "so far PSLDX has been free lunch" but that is only because the downside risk has not yet materialized.

I am contrasting this topic against say GME or the NanBan investment topic and I am really shocked at the positive reception this one is getting as compared to the other two. Being able to back test specific mix of UPRO/TMF/BLV to mimic the past PSLDX performance also impresses me. Is there a valid theory behind that specific mix? Could I just run trillion simulations to come up with a different mix which will show how it could have given even better results than PSLDX? And if so, should I use that mix going forward?

I will be the first person to tell you when I do not understand something but at least I know what I don't know and I know enough to know when too many numbers are being thrown at me to impress me.
DMoogle gave you the answer above.

There is a difference between picking individual stocks (GME) vs picking diversified asset classes that have tended to behave in a certain way for fundamental reasons (PSLDX)
DMoogle
Posts: 549
Joined: Sat Oct 31, 2020 10:24 pm

Re: Why not 100% PSLDX?

Post by DMoogle »

wrongfunds wrote: Mon Feb 15, 2021 10:13 am Isn't the probability of interest rate going up is higher than the probability of interest rate going down? Now I do understand the recent history does not agree with that assertion as the interest rates have been steadily dropping but they are almost approaching zero.

Was I wrong in interpreting HF's assertion of double the upside potential with normal risk part? I thought he mentioned something like that in the early replies.

May be I should say "so far PSLDX has been free lunch" but that is only because the downside risk has not yet materialized.

I am contrasting this topic against say GME or the NanBan investment topic and I am really shocked at the positive reception this one is getting as compared to the other two. Being able to back test specific mix of UPRO/TMF/BLV to mimic the past PSLDX performance also impresses me. Is there a valid theory behind that specific mix? Could I just run trillion simulations to come up with a different mix which will show how it could have given even better results than PSLDX? And if so, should I use that mix going forward?

I will be the first person to tell you when I do not understand something but at least I know what I don't know and I know enough to know when too many numbers are being thrown at me to impress me.
The base theory in this and other leveraged portfolios discussed here is based on many of the fundamentals that ARE true to Bogleheads... just much more aggressive.

The concept of diversification is still a free lunch, as it always has been and always will be. Anyone would agree that a stock+bond portfolio is less risky (I'm defining as some combination of less volatile + lower max drawdowns + more normalized returns) than a stock portfolio. Would a portfolio with 1% leverage (101% portfolio) be less risky? I think most would still agree yes, even though technically if everything went to 0 you would lose more than your entire investment. Well what about a 100% leveraged portfolio, such as PSLDX? Well, historically, the risk profile has been similar to a 100% S&P500 portfolio, but I think we can logically see how tail-end risk ("doomsday scenario"), the drawdowns could be substantially higher. But again, logically, the expected returns are substantially greater, and those that are participating think that those returns outweigh that risk.

I wouldn't get bogged too down in the details of what's the specific best mix of stuff like TMF or BLV or EDV... I think of that as akin to comparing, say, VOO to IVV. It's hard to make a conclusive argument for one vs. the other. I'll admit that the point about "how much lower can rates really go?" is a valid question, and after looking through the entire HFEA thread, I still don't really have a clean answer for... except that backtesting has shown that, even if rates are flat, these kinds of portfolios should still outperform (risk-adjusted returns) a 100% stock portfolio.
Semantics
Posts: 352
Joined: Tue Mar 10, 2020 1:42 pm

Re: Why not 100% PSLDX?

Post by Semantics »

wrongfunds wrote: Mon Feb 15, 2021 10:13 amIsn't the probability of interest rate going up is higher than the probability of interest rate going down?
Assuming you mean the Fed rate, expected future rates should already be priced into bond values. So indeed, rates are most likely to go up, but at a single moment in time long term treasury yields will only go up if the market starts expecting rates to go up more than previously thought. So treasury yields should be just as likely to go down as up, in any particular instant, I think.

I glossed over the time dimension. If we consider the 10-year yield, each passing day burns off one day of 0% interest rates in that 10 year duration, and replaces it with a day 10 years from now when rates are expected to be x% where x > 0. So all else being constant, LTT yields should tick up slightly over time, but they're still expected to produce a positive return in the short term and still reduce volatility. It only makes less sense to buy PSLDX now than a few years ago if one has a better alternative in mind.

Also to add to the point noted earlier that PSLDX harvests the spread between the borrowing rate and LTT, that spread is currently larger than it's been since 2017 (looking at the 30-year yield). So unless treasury yields rise really fast, that should offset a lot of the capital loss.
User avatar
firebirdparts
Posts: 4387
Joined: Thu Jun 13, 2019 4:21 pm
Location: Southern Appalachia

Re: Why not 100% PSLDX?

Post by firebirdparts »

wrongfunds wrote: Mon Feb 15, 2021 10:13 am Isn't the probability of interest rate going up is higher than the probability of interest rate going down? Now I do understand the recent history does not agree with that assertion as the interest rates have been steadily dropping but they are almost approaching zero.
Now that's quite a bit more than I can say. I would say that I don't see how interest rates could be negative 10%. But the odds of bond values going up 1% vs. down 1%? Not clear to me to at all.

I am pretty comfortable with this level of leverage with a certain amount of my 401k, but I don't hold 100% PSLDX per the thread title. I don't think it would be stupid to do so, but I don't do it.
This time is the same
FIRE55
Posts: 59
Joined: Tue Dec 15, 2020 6:09 pm

Re: Why not 100% PSLDX?

Post by FIRE55 »

Raraculus wrote: Fri Feb 12, 2021 1:42 pm
FIRE55 wrote: Thu Feb 11, 2021 2:31 pmI've seen this many times, help me understand it please. Is it just because PSLDX issues significant dividends? Could I use PSLDX to issue my desired income for the year and then re-enable re-investing dividends for the rest of the year?
I'm not sure about this one. Look at this link and click on the Dividends and Distributions tab.

Schwab's PSLDX Summary

As you can see PSLDX starts out small in the 1st Quarter - 5 cents/share, 1 cent/share, and 3 cents/share. Its payouts get a little bit bigger in the 2nd Quarter. The 3rd Quarter has bigger payouts per share. The 4th Quarter is the winning quarter! :shock:
I had missed that detail. It also made me notice that the bump in Q4 is largely ST/LT capital gains, and hence has that tax implication in a taxable account. In fact in Q4 2020 the ST distribution was more than the LT distribution.
Post Reply