Long Term Treasuries, as distinguished from Intermediate Term or Short Term.
[/quote]
Thank you.
Um you mean like have a safe asset to rebalance into 3X equities from? That was central to the strategy from day 1.Hydromod wrote: ↑Sun Sep 05, 2021 10:21 pmI feel for you. If I had left the portfolio untouched since 2/20/2020 until now, it would be up 3.4x instead of 2x (albeit extremely overbalanced to TQQQ).horizon wrote: ↑Sun Sep 05, 2021 10:08 pm Good luck everyone on this journey. In my case, it was kind of bad experience. I put 50% of the IRA in TQQQ early 2020 and can not handle the drawdown during Mar 2020. So, I cut loss my TQQQ position and had to build it back again. If I left them there alone, my IRA would be 3 times bigger. I do feel bad about myself cut loss TQQQ that time.
Hope everybody have a nice ride with the 3x ETF.
But I learned an awful lot about how to handle 3x LETFs in order to not make the same mistakes again, and I expect that over the next ten years I may be far better off because of these very expensive lessons.
Hopefully you will be able to use the pain as motivation to do better next time.
The performance of the portfolio does considerably better with monthly contributions than with lump sum. I'm actually considering depositing a lump sum in anchor protocol and using the interest for monthly payments to my HFEA portfolio. Eventually, you can possibly use margin borrowing to fund the contributions even, assuming the interest rates hold up in the crypto space and you can find a broker to offer margin borrowing against leveraged funds.
No, not exactly. Note that TQQQ more than tripled from February 2020 to present, while TMF has dropped a little, so my initially balanced portfolio now would be really out of whack without rebalancing. My little bad history reminder spreadsheet doesn't rebalance. Actually, now that I just checked with PV, a 2x increase is about what I should have gotten with reasonable rebalancing, and I feel much better that I didn't toss away 1/3 (and counting) of the portfolio.typical.investor wrote: ↑Mon Sep 06, 2021 2:33 amUm you mean like have a safe asset to rebalance into 3X equities from? That was central to the strategy from day 1.Hydromod wrote: ↑Sun Sep 05, 2021 10:21 pm I feel for you. If I had left the portfolio untouched since 2/20/2020 until now, it would be up 3.4x instead of 2x (albeit extremely overbalanced to TQQQ).
But I learned an awful lot about how to handle 3x LETFs in order to not make the same mistakes again, and I expect that over the next ten years I may be far better off because of these very expensive lessons.
Hopefully you will be able to use the pain as motivation to do better next time.
I see. PV doesn't have good rebalance data for me as it is at most once a month.Hydromod wrote: ↑Mon Sep 06, 2021 2:34 pmNo, not exactly. Note that TQQQ more than tripled from February 2020 to present, while TMF has dropped a little, so my initially balanced portfolio now would be really out of whack without rebalancing. My little bad history reminder spreadsheet doesn't rebalance. Actually, now that I just checked with PV, a 2x increase is about what I should have gotten with reasonable rebalancing, and I feel much better that I didn't toss away 1/3 (and counting) of the portfolio.typical.investor wrote: ↑Mon Sep 06, 2021 2:33 amUm you mean like have a safe asset to rebalance into 3X equities from? That was central to the strategy from day 1.Hydromod wrote: ↑Sun Sep 05, 2021 10:21 pm I feel for you. If I had left the portfolio untouched since 2/20/2020 until now, it would be up 3.4x instead of 2x (albeit extremely overbalanced to TQQQ).
But I learned an awful lot about how to handle 3x LETFs in order to not make the same mistakes again, and I expect that over the next ten years I may be far better off because of these very expensive lessons.
Hopefully you will be able to use the pain as motivation to do better next time.
...
Rebalancing is based on bands, normally triggering at reasonable intervals, except that the strategy has predefined weekly checks when the market is very active; this gives me clear-cut actions to head off emotional decisions in the heat of the moment.
The risk-budget minimum variance approach I'm using is basically a type of inverse volatility model that accounts for covariances. It just shades the allocations up and down (a UPRO/TMF pair might vary between 30/70 and 70/30, for example) to keep volatilities low, but there's no consideration of returns at all except for the overall fraction of risk assigned to equities versus treasuries. So not a momentum strategy in any way.typical.investor wrote: ↑Mon Sep 06, 2021 4:00 pm I see. PV doesn't have good rebalance data for me as it is at most once a month.
In March 2020, I sold TMF three times for between $38-$50 compared to its $29 now and bought UPRO for between $17-$45 compared to its $133 today.
Timing is difficult so the $17 UPRO purchase wasn't for that much as it was the third time rebalancing in March.
Avoiding UPRO when things get volatile seems difficult to time to me based on my reading of momentum strategies. I hope it works out for you.
Rebalanced this week. Went from about 63/37 upro/tmf allocation back to 55/45.jeremyl wrote: ↑Fri Apr 02, 2021 5:55 amRebalanced this week. I went with 60/40 on the rebalance.jeremyl wrote: ↑Fri Jan 01, 2021 7:39 am Giving this a go to start the new year on Monday 1/4. Right now plan to do in a separate Roth IRA with Fidelity but contemplating a taxable at Fidelity to help with goal of being FIRE as I need the taxable to grow to cover the gap years until pension can kick in if I do FIRE.
Start date: 1/4/21
Approach: Fixed allocation - 55/45 UPRO/TMF
Rebalancing frequency: Quarterly
Return (total / YTD):
Initial contribution: $10,000 (just under 3% of our portfolio)
Additional contributions: Yearly Roth amounts unless I start in taxable.
Made just a little bit this quarter.
Start date: 1/4/21
Approach: Fixed allocation - 55/45 UPRO/TMF
Rebalancing frequency: Quarterly
Return (total / YTD): 1.67%
Initial contribution: $10,000 (just under 3% of our portfolio)
Where would a non-deductible tIRA fit in here? It's seems like the most important thing for this portfolio is rebalancing at least quarterly to ensure that you have enough money in bonds to buyback stocks if they take a big hit in a downturn. Wouldn't having to rebalance in a taxable account for a fund that might have wild upswings in profit be difficult to do efficiently in a taxable account? My state and city also don't treat long term capital gains differently than short term cap gains so taxable accounts really take a hit for rebalancing.Hydromod wrote: ↑Fri Aug 06, 2021 1:28 pmThis is the standard thinking: best in order of (i) Roth, (ii) tax-deferred, and last (iii) taxable.jarjarM wrote: ↑Thu Aug 05, 2021 8:01 pm True, if one expect to have significant out performance for this strategy, lump sum to start in a tax advantaged account is the best. Since there's lots of volatility of the individual components, contribution to the lower performing component should work well. Of course the tax drag will be somewhat significant if there's a need to sell and rebalance in the taxable account, hopefully one can do that in a low tax year.
There's no question that Roth is best.
It's not so clear that tax-deferred is necessarily better than taxable.
In tax-deferred, withdrawals are ordinary income, so large withdrawals can incur up to significant brackets.
In taxable, withdrawals are long-term capital gains, which is 15 or 20% (which can be significantly cheaper, depending on how much is withdrawn).
Tax-deferred rebalancing doesn't have a tax hit.
Taxable rebalancing can be done with LTCG, using relatively new shares with more modest gains (I think M1 does this automatically), which might correspond to 1 or 2% ER (consider x turnover during rebalance * y growth in basis * LTCG tax rate).
It may be worthwhile to take the early growth hit if you intend to consume at high levels and can meet the goal either way.
Just spitballing here.
It's okay to do this in taxable but the tax drag will dependent heavily on your income, amount invested and new contribution. Someone in the HFEA 2nd thread did some tax simulation and the drag is only a couple of percentage points on the CAGR. Of course, future tax rate is unknowable too.manlymatt83 wrote: ↑Thu Oct 14, 2021 12:16 pm Is this generally OK to do in a taxable if you only rebalance with new contributions?
A poster in a related thread suggested some in both accounts, which might fit the bill nicely. $25k in taxable, $25k in tax advantaged, rebalance only in tax advantaged. ¯\_(ツ)_/¯jarjarM wrote: ↑Thu Oct 14, 2021 1:36 pmIt's okay to do this in taxable but the tax drag will dependent heavily on your income, amount invested and new contribution. Someone in the HFEA 2nd thread did some tax simulation and the drag is only a couple of percentage points on the CAGR. Of course, future tax rate is unknowable too.manlymatt83 wrote: ↑Thu Oct 14, 2021 12:16 pm Is this generally OK to do in a taxable if you only rebalance with new contributions?
Yeah I saw skier's input, I think that's fine too as long as your tax advantaged account grow at a reasonable rate (from new contribution) compare to taxable.manlymatt83 wrote: ↑Thu Oct 14, 2021 1:40 pmA poster in a related thread suggested some in both accounts, which might fit the bill nicely. $25k in taxable, $25k in tax advantaged, rebalance only in tax advantaged. ¯\_(ツ)_/¯jarjarM wrote: ↑Thu Oct 14, 2021 1:36 pmIt's okay to do this in taxable but the tax drag will dependent heavily on your income, amount invested and new contribution. Someone in the HFEA 2nd thread did some tax simulation and the drag is only a couple of percentage points on the CAGR. Of course, future tax rate is unknowable too.manlymatt83 wrote: ↑Thu Oct 14, 2021 12:16 pm Is this generally OK to do in a taxable if you only rebalance with new contributions?
Thanks!jarjarM wrote: ↑Thu Oct 14, 2021 1:42 pmYeah I saw skier's input, I think that's fine too as long as your tax advantaged account grow at a reasonable rate (from new contribution) compare to taxable.manlymatt83 wrote: ↑Thu Oct 14, 2021 1:40 pmA poster in a related thread suggested some in both accounts, which might fit the bill nicely. $25k in taxable, $25k in tax advantaged, rebalance only in tax advantaged. ¯\_(ツ)_/¯jarjarM wrote: ↑Thu Oct 14, 2021 1:36 pmIt's okay to do this in taxable but the tax drag will dependent heavily on your income, amount invested and new contribution. Someone in the HFEA 2nd thread did some tax simulation and the drag is only a couple of percentage points on the CAGR. Of course, future tax rate is unknowable too.manlymatt83 wrote: ↑Thu Oct 14, 2021 12:16 pm Is this generally OK to do in a taxable if you only rebalance with new contributions?
How?skierincolorado wrote: ↑Thu Oct 14, 2021 2:09 pm Oof. I didn't realize how many people in this thread were doing only a small part of their portfolio in HFEA. For all those people, may I suggest allocating a slightly larger portion of your portfolio to a modified HFEA that is less risky and more efficient?
https://www.portfoliovisualizer.com/bac ... on4_2=-300
Instead of doing 10% of net worth in HFEA which is 165/135 stock/LTT, do 20% of one's portfolio in 135/165 stock/ITT. The latter portfolio has higher risk adjusted returns.TheDoctor91 wrote: ↑Fri Oct 15, 2021 3:12 amHow?skierincolorado wrote: ↑Thu Oct 14, 2021 2:09 pm Oof. I didn't realize how many people in this thread were doing only a small part of their portfolio in HFEA. For all those people, may I suggest allocating a slightly larger portion of your portfolio to a modified HFEA that is less risky and more efficient?
https://www.portfoliovisualizer.com/bac ... on4_2=-300
What actual vehicles apart from futures would you propose using to accomplish that? Thanksskierincolorado wrote: ↑Fri Oct 15, 2021 8:59 amInstead of doing 10% of net worth in HFEA which is 165/135 stock/LTT, do 20% of one's portfolio in 135/165 stock/ITT. The latter portfolio has higher risk adjusted returns.TheDoctor91 wrote: ↑Fri Oct 15, 2021 3:12 amHow?skierincolorado wrote: ↑Thu Oct 14, 2021 2:09 pm Oof. I didn't realize how many people in this thread were doing only a small part of their portfolio in HFEA. For all those people, may I suggest allocating a slightly larger portion of your portfolio to a modified HFEA that is less risky and more efficient?
https://www.portfoliovisualizer.com/bac ... on4_2=-300
If we look at the 10% in HFEA and the other 10% that we are moving from (assuming) VTI to modified HFEA:
Originally 10% HFEA + 10% VTI = 132.5/67.5 stock/LTT for that 20% of your portfolio (ignoring the other 80%)
New 20% in modified HFEA = 135/165 stock/ITT (again ignoring the other 80% of your portfolio)
Let's run the PV for that 20%. The red line is 20% 'modified' HFEA. The blue line is 10% HFEA + 10% VTI. The red line has much higher CAGR and a lower max-drawdown. 'Modified' HFEA can be implemented with TYD or TYA (LETFs), or with futures contracts.
https://www.portfoliovisualizer.com/bac ... on4_2=-200
FIrst choice would be futures obviously for lowest cost, but UPRO + TYD or TYA I think is perfectly acceptable - if you are comfortable with the management of those funds.perfectuncertainty wrote: ↑Sun Oct 17, 2021 11:15 amWhat actual vehicles apart from futures would you propose using to accomplish that? Thanksskierincolorado wrote: ↑Fri Oct 15, 2021 8:59 amInstead of doing 10% of net worth in HFEA which is 165/135 stock/LTT, do 20% of one's portfolio in 135/165 stock/ITT. The latter portfolio has higher risk adjusted returns.TheDoctor91 wrote: ↑Fri Oct 15, 2021 3:12 amHow?skierincolorado wrote: ↑Thu Oct 14, 2021 2:09 pm Oof. I didn't realize how many people in this thread were doing only a small part of their portfolio in HFEA. For all those people, may I suggest allocating a slightly larger portion of your portfolio to a modified HFEA that is less risky and more efficient?
https://www.portfoliovisualizer.com/bac ... on4_2=-300
If we look at the 10% in HFEA and the other 10% that we are moving from (assuming) VTI to modified HFEA:
Originally 10% HFEA + 10% VTI = 132.5/67.5 stock/LTT for that 20% of your portfolio (ignoring the other 80%)
New 20% in modified HFEA = 135/165 stock/ITT (again ignoring the other 80% of your portfolio)
Let's run the PV for that 20%. The red line is 20% 'modified' HFEA. The blue line is 10% HFEA + 10% VTI. The red line has much higher CAGR and a lower max-drawdown. 'Modified' HFEA can be implemented with TYD or TYA (LETFs), or with futures contracts.
https://www.portfoliovisualizer.com/bac ... on4_2=-200
I don't particularly favor TYD as AUM is tiny. TYA is 1 month old.skierincolorado wrote: ↑Sun Oct 17, 2021 11:38 amFIrst choice would be futures obviously for lowest cost, but UPRO + TYD or TYA I think is perfectly acceptable - if you are comfortable with the management of those funds.perfectuncertainty wrote: ↑Sun Oct 17, 2021 11:15 amWhat actual vehicles apart from futures would you propose using to accomplish that? Thanksskierincolorado wrote: ↑Fri Oct 15, 2021 8:59 amInstead of doing 10% of net worth in HFEA which is 165/135 stock/LTT, do 20% of one's portfolio in 135/165 stock/ITT. The latter portfolio has higher risk adjusted returns.TheDoctor91 wrote: ↑Fri Oct 15, 2021 3:12 amHow?skierincolorado wrote: ↑Thu Oct 14, 2021 2:09 pm Oof. I didn't realize how many people in this thread were doing only a small part of their portfolio in HFEA. For all those people, may I suggest allocating a slightly larger portion of your portfolio to a modified HFEA that is less risky and more efficient?
https://www.portfoliovisualizer.com/bac ... on4_2=-300
If we look at the 10% in HFEA and the other 10% that we are moving from (assuming) VTI to modified HFEA:
Originally 10% HFEA + 10% VTI = 132.5/67.5 stock/LTT for that 20% of your portfolio (ignoring the other 80%)
New 20% in modified HFEA = 135/165 stock/ITT (again ignoring the other 80% of your portfolio)
Let's run the PV for that 20%. The red line is 20% 'modified' HFEA. The blue line is 10% HFEA + 10% VTI. The red line has much higher CAGR and a lower max-drawdown. 'Modified' HFEA can be implemented with TYD or TYA (LETFs), or with futures contracts.
https://www.portfoliovisualizer.com/bac ... on4_2=-200
Another option would be to do a box-spread loan for the equity portion + TYD or TYA for the bond portion.
I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:perfectuncertainty wrote: ↑Sun Oct 17, 2021 1:18 pmI don't particularly favor TYD as AUM is tiny. TYA is 1 month old.skierincolorado wrote: ↑Sun Oct 17, 2021 11:38 amFIrst choice would be futures obviously for lowest cost, but UPRO + TYD or TYA I think is perfectly acceptable - if you are comfortable with the management of those funds.perfectuncertainty wrote: ↑Sun Oct 17, 2021 11:15 amWhat actual vehicles apart from futures would you propose using to accomplish that? Thanksskierincolorado wrote: ↑Fri Oct 15, 2021 8:59 amInstead of doing 10% of net worth in HFEA which is 165/135 stock/LTT, do 20% of one's portfolio in 135/165 stock/ITT. The latter portfolio has higher risk adjusted returns.
If we look at the 10% in HFEA and the other 10% that we are moving from (assuming) VTI to modified HFEA:
Originally 10% HFEA + 10% VTI = 132.5/67.5 stock/LTT for that 20% of your portfolio (ignoring the other 80%)
New 20% in modified HFEA = 135/165 stock/ITT (again ignoring the other 80% of your portfolio)
Let's run the PV for that 20%. The red line is 20% 'modified' HFEA. The blue line is 10% HFEA + 10% VTI. The red line has much higher CAGR and a lower max-drawdown. 'Modified' HFEA can be implemented with TYD or TYA (LETFs), or with futures contracts.
https://www.portfoliovisualizer.com/bac ... on4_2=-200
Another option would be to do a box-spread loan for the equity portion + TYD or TYA for the bond portion.
Any other suggestions? Say 55% UPRO then how do we get 45% for the bonds? If we used futures which would you buy and how do you calculate the matching leverage for say 2x?
This seems intriguing but I am having a bit of trouble following your rebalancing examples. Before I ask any questions, I was wondering if you have previously made a post/thread elsewhere that goes into more complete details how you would maintain the target AA using ZN/ZF futures? If yes, I could go check that out.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm
I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
before rebalance: 12.5k UPRO, 16.5k VGIT, 1 ZF, 20k cash - equity is 49k, stock is 37.5k, bonds are still near target
after rebalance: 24.5k UPRO, 14.5k VGIT, 1 ZF, 10k cash
After you go through some examples it becomes pretty easy to maintain a target AA for equities above 40-50k. Even for equities as low as 30k, you can maintain a target AA, if you are targeting something like 130/200 stocks/ITT.
Yep this thread: viewtopic.php?f=10&t=357281cflannagan wrote: ↑Sun Oct 17, 2021 2:47 pmThis seems intriguing but I am having a bit of trouble following your rebalancing examples. Before I ask any questions, I was wondering if you have previously made a post/thread elsewhere that goes into more complete details how you would maintain the target AA using ZN/ZF futures? If yes, I could go check that out.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm
I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
before rebalance: 12.5k UPRO, 16.5k VGIT, 1 ZF, 20k cash - equity is 49k, stock is 37.5k, bonds are still near target
after rebalance: 24.5k UPRO, 14.5k VGIT, 1 ZF, 10k cash
After you go through some examples it becomes pretty easy to maintain a target AA for equities above 40-50k. Even for equities as low as 30k, you can maintain a target AA, if you are targeting something like 130/200 stocks/ITT.
OK so far so good.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
What about a flat market with rising rates?skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
Absolutely, ideally we should be able to rebalance back to our target AA if one goes down and the other does not go up (or if both go down). And we can. In your example, if UPRO went down, we would have plent of CASH and VGIT to sell to buy more UPRO. Under no circumstance should to total stock allocation fall below 150% (except between rebalancing periods)typical.investor wrote: ↑Sun Oct 17, 2021 6:59 pmOK so far so good.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
What about a flat market with rising rates?skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
For instance, in a flat market (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing.
And if rates go the other direction (due to inflation), you could see a 15% loss in 8 year bonds or 10% in 5 year bonds.
You will be selling (at least some of) the VGIT and using cash to maintain the ZF contract or maybe all of it if the situation continues a couple of years.
Ideally you'd want to rebalance into the 3X equities (as there will be an opportunity in that volatile market) when they are low. Otherwise you will might just be stuck with the volatility loss [unless a bull market in the future makes up for it with a volatility boost - but there is no guarantee at all of that].
So will cashflows from new contributions make it possible? In terms of risk management, one shouldn't only plan for the ideal case (stock loss will be offset by bond gains).
I'm planning for HFEA to work out, but I am also planning to be able to add money as necessary and that is why I limit it to only part of my portfolio.
skierincolorado, I know you believe the volatility effect will wash out over time due to the reputed magic of hedge fund investors necessitating it so, but I do not believe that to necessarily be the case especially over shorter terms and especially if you are so leveraged that you won't be able to come up with the necessary cash flows when equities do poorly and the daily leverage gets reset (which requires you to add exposure or risk underperforming 3X the index and maybe even realizing a loss in a flat or mildly upward market).
Not saying your plan is bad, only that you should be prepared mentally for this case too.
I don't think you are following my example.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pmAbsolutely, ideally we should be able to rebalance back to our target AA if one goes down and the other does not go up (or if both go down). And we can:typical.investor wrote: ↑Sun Oct 17, 2021 6:59 pmOK so far so good.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
What about a flat market with rising rates?skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
For instance, in a flat market (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing.
And if rates go the other direction (due to inflation), you could see a 15% loss in 8 year bonds or 10% in 5 year bonds.
You will be selling (at least some of) the VGIT and using cash to maintain the ZF contract or maybe all of it if the situation continues a couple of years.
Ideally you'd want to rebalance into the 3X equities (as there will be an opportunity in that volatile market) when they are low. Otherwise you will might just be stuck with the volatility loss [unless a bull market in the future makes up for it with a volatility boost - but there is no guarantee at all of that].
So will cashflows from new contributions make it possible? In terms of risk management, one shouldn't only plan for the ideal case (stock loss will be offset by bond gains).
I'm planning for HFEA to work out, but I am also planning to be able to add money as necessary and that is why I limit it to only part of my portfolio.
skierincolorado, I know you believe the volatility effect will wash out over time due to the reputed magic of hedge fund investors necessitating it so, but I do not believe that to necessarily be the case especially over shorter terms and especially if you are so leveraged that you won't be able to come up with the necessary cash flows when equities do poorly and the daily leverage gets reset (which requires you to add exposure or risk underperforming 3X the index and maybe even realizing a loss in a flat or mildly upward market).
Not saying your plan is bad, only that you should be prepared mentally for this case too.
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
let's simulate 5 year bonds doing two consecutive drawdowns of 5% (~5% is the max-drawdown in the last 10 years)
after first 5%:
25k UPRO, 14.25k VGIT, 1 ZF, 5k cash. equity is 44.25k. To maintain our initial 240% AA in 5-yr bonds, we want 44.25*2.4 = 106k in bonds. And we want 44.25*1.5 in stock = 66k
Thus we rebalance to:
20k UPRO, 6k VTI, 6k VGIT, 100k ZF, 12k cash
Sure you can always rebalance back to 150/150 AA. Of course, but if you don't rebalance your 3X equities back to (or closer to) 3X market returns, you could suffer volatility loss over time. You example give $66k of stock exposure. Yet anyone holding VTI from the start would be at $25k since returns for the market were zero. You are no longer 3X the market in equity exposure and your rebalancing didn't reset that. So you can have volatility loss.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pm Beginning with 50k of equity, and a 150/150 stock/bond AA, one should be able to rebalance back to the target 150/150 AA no matter what the market does. If both bonds and stocks do poorly, you might end up a little over-target on bonds because the minimum increment for ZF is 100k. Other than that though, the target AA can always be maintained - and most importantly the stock allocation can always be rebalanced to 150%.
What you are describing is an identical problem with original HFEA as well. If it is part of one's plan, one could certainly move cash and bonds into UPRO to fight volatility decay even during periods when bonds have flat or negative returns. Whether original HFEA, or modified, this will require sacrificing the bond portion of the portfolio, if bonds are not providing the expected negative correlation.typical.investor wrote: ↑Sun Oct 17, 2021 8:55 pmI don't think you are following my example.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pmAbsolutely, ideally we should be able to rebalance back to our target AA if one goes down and the other does not go up (or if both go down). And we can:typical.investor wrote: ↑Sun Oct 17, 2021 6:59 pmOK so far so good.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
What about a flat market with rising rates?skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
For instance, in a flat market (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing.
And if rates go the other direction (due to inflation), you could see a 15% loss in 8 year bonds or 10% in 5 year bonds.
You will be selling (at least some of) the VGIT and using cash to maintain the ZF contract or maybe all of it if the situation continues a couple of years.
Ideally you'd want to rebalance into the 3X equities (as there will be an opportunity in that volatile market) when they are low. Otherwise you will might just be stuck with the volatility loss [unless a bull market in the future makes up for it with a volatility boost - but there is no guarantee at all of that].
So will cashflows from new contributions make it possible? In terms of risk management, one shouldn't only plan for the ideal case (stock loss will be offset by bond gains).
I'm planning for HFEA to work out, but I am also planning to be able to add money as necessary and that is why I limit it to only part of my portfolio.
skierincolorado, I know you believe the volatility effect will wash out over time due to the reputed magic of hedge fund investors necessitating it so, but I do not believe that to necessarily be the case especially over shorter terms and especially if you are so leveraged that you won't be able to come up with the necessary cash flows when equities do poorly and the daily leverage gets reset (which requires you to add exposure or risk underperforming 3X the index and maybe even realizing a loss in a flat or mildly upward market).
Not saying your plan is bad, only that you should be prepared mentally for this case too.
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
let's simulate 5 year bonds doing two consecutive drawdowns of 5% (~5% is the max-drawdown in the last 10 years)
after first 5%:
25k UPRO, 14.25k VGIT, 1 ZF, 5k cash. equity is 44.25k. To maintain our initial 240% AA in 5-yr bonds, we want 44.25*2.4 = 106k in bonds. And we want 44.25*1.5 in stock = 66k
Thus we rebalance to:
20k UPRO, 6k VTI, 6k VGIT, 100k ZF, 12k cash
If the market were flat (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing. As the loss in this case was caused by volatility and not market returns, you would want to increase your exposure to UPRO back to $25k which is where is would be for 3X market returns.
Sure you can always rebalance back to 150/150 AA. Of course, but if you don't rebalance your 3X equities back to (or closer to) 3X market returns, you could suffer volatility loss over time. You example give $66k of stock exposure. Yet anyone holding VTI from the start would be at $25k since returns for the market were zero. You are no longer 3X the market in equity exposure and your rebalancing didn't reset that. So you can have volatility loss.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pm Beginning with 50k of equity, and a 150/150 stock/bond AA, one should be able to rebalance back to the target 150/150 AA no matter what the market does. If both bonds and stocks do poorly, you might end up a little over-target on bonds because the minimum increment for ZF is 100k. Other than that though, the target AA can always be maintained - and most importantly the stock allocation can always be rebalanced to 150%.
Simply rebalancing your AA to 150/150 doesn't prevent volatility from shrinking your equity exposure relative to market returns. What you'd want to do is put $5k cash into UPRO.
Yes, it is true for the original HFEA too. That is a big reason why it's not suggested to do it with with all your money.skierincolorado wrote: ↑Sun Oct 17, 2021 9:12 pmWhat you are describing is an identical problem with original HFEA as well. If it is part of one's plan, one could certainly move cash and bonds into UPRO to fight volatility decay even during periods when bonds have flat or negative returns.typical.investor wrote: ↑Sun Oct 17, 2021 8:55 pmI don't think you are following my example.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pmAbsolutely, ideally we should be able to rebalance back to our target AA if one goes down and the other does not go up (or if both go down). And we can:typical.investor wrote: ↑Sun Oct 17, 2021 6:59 pmOK so far so good.skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm I buy ZF and ZN futures. But they are roughly 100k exposure per contract. Could complement with a bond fund like VGIT. You'd need at least 40k to be using ZF futures. Even at 40k, you'd be 250% AA in bonds. An examples with possible quarterly rebalance scenarios:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
What about a flat market with rising rates?skierincolorado wrote: ↑Sun Oct 17, 2021 2:05 pm quarterly rebalance after 50% drop in URPO, 15% bump for 8 year bonds -> 10% bump for 5 year bonds:
For instance, in a flat market (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing.
And if rates go the other direction (due to inflation), you could see a 15% loss in 8 year bonds or 10% in 5 year bonds.
You will be selling (at least some of) the VGIT and using cash to maintain the ZF contract or maybe all of it if the situation continues a couple of years.
Ideally you'd want to rebalance into the 3X equities (as there will be an opportunity in that volatile market) when they are low. Otherwise you will might just be stuck with the volatility loss [unless a bull market in the future makes up for it with a volatility boost - but there is no guarantee at all of that].
So will cashflows from new contributions make it possible? In terms of risk management, one shouldn't only plan for the ideal case (stock loss will be offset by bond gains).
I'm planning for HFEA to work out, but I am also planning to be able to add money as necessary and that is why I limit it to only part of my portfolio.
skierincolorado, I know you believe the volatility effect will wash out over time due to the reputed magic of hedge fund investors necessitating it so, but I do not believe that to necessarily be the case especially over shorter terms and especially if you are so leveraged that you won't be able to come up with the necessary cash flows when equities do poorly and the daily leverage gets reset (which requires you to add exposure or risk underperforming 3X the index and maybe even realizing a loss in a flat or mildly upward market).
Not saying your plan is bad, only that you should be prepared mentally for this case too.
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
let's simulate 5 year bonds doing two consecutive drawdowns of 5% (~5% is the max-drawdown in the last 10 years)
after first 5%:
25k UPRO, 14.25k VGIT, 1 ZF, 5k cash. equity is 44.25k. To maintain our initial 240% AA in 5-yr bonds, we want 44.25*2.4 = 106k in bonds. And we want 44.25*1.5 in stock = 66k
Thus we rebalance to:
20k UPRO, 6k VTI, 6k VGIT, 100k ZF, 12k cash
If the market were flat (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing. As the loss in this case was caused by volatility and not market returns, you would want to increase your exposure to UPRO back to $25k which is where is would be for 3X market returns.
Sure you can always rebalance back to 150/150 AA. Of course, but if you don't rebalance your 3X equities back to (or closer to) 3X market returns, you could suffer volatility loss over time. You example give $66k of stock exposure. Yet anyone holding VTI from the start would be at $25k since returns for the market were zero. You are no longer 3X the market in equity exposure and your rebalancing didn't reset that. So you can have volatility loss.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pm Beginning with 50k of equity, and a 150/150 stock/bond AA, one should be able to rebalance back to the target 150/150 AA no matter what the market does. If both bonds and stocks do poorly, you might end up a little over-target on bonds because the minimum increment for ZF is 100k. Other than that though, the target AA can always be maintained - and most importantly the stock allocation can always be rebalanced to 150%.
Simply rebalancing your AA to 150/150 doesn't prevent volatility from shrinking your equity exposure relative to market returns. What you'd want to do is put $5k cash into UPRO.
No, no, no and no. At least not for most HFEA investors should they so choose. Why in the above example would you sell leveraged bonds after they have suffered a NAV loss? That defies bond 101. Try to hold until they recover at the duration (or sooner if rates come down).skierincolorado wrote: ↑Sun Oct 17, 2021 9:12 pm Whether original HFEA, or modified, this will require sacrificing the bond portion of the portfolio, if bonds are not providing the expected negative correlation.
Yes this is certainly a possible strategy if you are particularly concerned about volatility decay. Ultimately you will end up moving money from other accoutns to HFEA during periods of volatility decay. If you do not then withdraw the money during periods of low-volatility boost, the money will only flow in one direction. If your HFEA account is small, you may get away with this for a very long time. If the HFEA account is bigger relative to overall nw, you will eventually reduce the safe assets to an acceptably low % of net worth.typical.investor wrote: ↑Sun Oct 17, 2021 9:56 pmYes, it is true for the original HFEA too. That is a big reason why it's not suggested to do it with with all your money.skierincolorado wrote: ↑Sun Oct 17, 2021 9:12 pmWhat you are describing is an identical problem with original HFEA as well. If it is part of one's plan, one could certainly move cash and bonds into UPRO to fight volatility decay even during periods when bonds have flat or negative returns.typical.investor wrote: ↑Sun Oct 17, 2021 8:55 pmI don't think you are following my example.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pmAbsolutely, ideally we should be able to rebalance back to our target AA if one goes down and the other does not go up (or if both go down). And we can:typical.investor wrote: ↑Sun Oct 17, 2021 6:59 pm
OK so far so good.
What about a flat market with rising rates?
For instance, in a flat market (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing.
And if rates go the other direction (due to inflation), you could see a 15% loss in 8 year bonds or 10% in 5 year bonds.
You will be selling (at least some of) the VGIT and using cash to maintain the ZF contract or maybe all of it if the situation continues a couple of years.
Ideally you'd want to rebalance into the 3X equities (as there will be an opportunity in that volatile market) when they are low. Otherwise you will might just be stuck with the volatility loss [unless a bull market in the future makes up for it with a volatility boost - but there is no guarantee at all of that].
So will cashflows from new contributions make it possible? In terms of risk management, one shouldn't only plan for the ideal case (stock loss will be offset by bond gains).
I'm planning for HFEA to work out, but I am also planning to be able to add money as necessary and that is why I limit it to only part of my portfolio.
skierincolorado, I know you believe the volatility effect will wash out over time due to the reputed magic of hedge fund investors necessitating it so, but I do not believe that to necessarily be the case especially over shorter terms and especially if you are so leveraged that you won't be able to come up with the necessary cash flows when equities do poorly and the daily leverage gets reset (which requires you to add exposure or risk underperforming 3X the index and maybe even realizing a loss in a flat or mildly upward market).
Not saying your plan is bad, only that you should be prepared mentally for this case too.
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
let's simulate 5 year bonds doing two consecutive drawdowns of 5% (~5% is the max-drawdown in the last 10 years)
after first 5%:
25k UPRO, 14.25k VGIT, 1 ZF, 5k cash. equity is 44.25k. To maintain our initial 240% AA in 5-yr bonds, we want 44.25*2.4 = 106k in bonds. And we want 44.25*1.5 in stock = 66k
Thus we rebalance to:
20k UPRO, 6k VTI, 6k VGIT, 100k ZF, 12k cash
If the market were flat (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing. As the loss in this case was caused by volatility and not market returns, you would want to increase your exposure to UPRO back to $25k which is where is would be for 3X market returns.
Sure you can always rebalance back to 150/150 AA. Of course, but if you don't rebalance your 3X equities back to (or closer to) 3X market returns, you could suffer volatility loss over time. You example give $66k of stock exposure. Yet anyone holding VTI from the start would be at $25k since returns for the market were zero. You are no longer 3X the market in equity exposure and your rebalancing didn't reset that. So you can have volatility loss.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pm Beginning with 50k of equity, and a 150/150 stock/bond AA, one should be able to rebalance back to the target 150/150 AA no matter what the market does. If both bonds and stocks do poorly, you might end up a little over-target on bonds because the minimum increment for ZF is 100k. Other than that though, the target AA can always be maintained - and most importantly the stock allocation can always be rebalanced to 150%.
Simply rebalancing your AA to 150/150 doesn't prevent volatility from shrinking your equity exposure relative to market returns. What you'd want to do is put $5k cash into UPRO.
No, no, no and no. At least not for most HFEA investors should they so choose. Why in the above example would you sell leveraged bonds after they have suffered a NAV loss? That defies bond 101. Try to hold until they recover at the duration (or sooner if rates come down).skierincolorado wrote: ↑Sun Oct 17, 2021 9:12 pm Whether original HFEA, or modified, this will require sacrificing the bond portion of the portfolio, if bonds are not providing the expected negative correlation.
Ignore bonds for a second and view it if HFEA is only a slice of your portfolio.
Say for equities you had:
$25,000 UPRO (3X LETF)
$25,000 VOO
---------------------
=$100,000 equity exposure
And assume we hit the HFEA kryptonite of sideways returns, highish volatility and no chance to rebalance from bonds due to rate hikes as in the example above where the LEFT fund loses 17.1% or so due to sideways equity movement (0% return) and volatility.
If, for example, the $25k of UPRO (3X LETF) is down to $20,725 due to the 17.1% volatility loss, you can rebalance $6412.50 from VOO and you will still have $100,000 exposure in equities [(20,725 +6412.5) *3 +(25,000-6412.50)*1].
You will have neither sacrificed bonds at an inopportune time (NAV loss due to rising rates), nor have you reduced your equity exposure solely due to market volatility.
That's my suggestion anyway. Of course if things go sideways long enough, that $25,000 in VOO isn't going to be enough. I only used $25,000 to keep the example simple.
I am generally keeping my HFEA allocation separate, but would be willing to use VTI holdings in the kryptonite case if UPRO is badly underperforming 3X the market and it's not possible to effectively rebalance from bonds.
Perhaps that's why I don't see ITT as being so advantageous to LTT. They aren't my only source to rebalance from if for instance we hit a few years of rising rates.
Rates have been dramatically falling over the last 30 years. No doubt this is having a big effect.skierincolorado wrote: ↑Mon Oct 18, 2021 12:26 pmYes this is certainly a possible strategy if you are particularly concerned about volatility decay. Ultimately you will end up moving money from other accoutns to HFEA during periods of volatility decay. If you do not then withdraw the money during periods of low-volatility boost, the money will only flow in one direction. If your HFEA account is small, you may get away with this for a very long time. If the HFEA account is bigger relative to overall nw, you will eventually reduce the safe assets to an acceptably low % of net worth.typical.investor wrote: ↑Sun Oct 17, 2021 9:56 pmYes, it is true for the original HFEA too. That is a big reason why it's not suggested to do it with with all your money.skierincolorado wrote: ↑Sun Oct 17, 2021 9:12 pmWhat you are describing is an identical problem with original HFEA as well. If it is part of one's plan, one could certainly move cash and bonds into UPRO to fight volatility decay even during periods when bonds have flat or negative returns.typical.investor wrote: ↑Sun Oct 17, 2021 8:55 pmI don't think you are following my example.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pm
Absolutely, ideally we should be able to rebalance back to our target AA if one goes down and the other does not go up (or if both go down). And we can:
50k equity equivalent to 50/50 UPRO/TYD - targeting 75k stocks and 75k 8-yr bonds, or 120k 5 year bonds
initial: 25k UPRO, 15k VGIT, 1 ZF, 10k cash - (75k stocks, 115k 5-yr bonds equivalent to ~75k 8 year bonds)
let's simulate 5 year bonds doing two consecutive drawdowns of 5% (~5% is the max-drawdown in the last 10 years)
after first 5%:
25k UPRO, 14.25k VGIT, 1 ZF, 5k cash. equity is 44.25k. To maintain our initial 240% AA in 5-yr bonds, we want 44.25*2.4 = 106k in bonds. And we want 44.25*1.5 in stock = 66k
Thus we rebalance to:
20k UPRO, 6k VTI, 6k VGIT, 100k ZF, 12k cash
If the market were flat (0% returns) which highish volatility (25%). The long 3X equity fund will lose 17.1% over the course of a year with no rebalancing. As the loss in this case was caused by volatility and not market returns, you would want to increase your exposure to UPRO back to $25k which is where is would be for 3X market returns.
Sure you can always rebalance back to 150/150 AA. Of course, but if you don't rebalance your 3X equities back to (or closer to) 3X market returns, you could suffer volatility loss over time. You example give $66k of stock exposure. Yet anyone holding VTI from the start would be at $25k since returns for the market were zero. You are no longer 3X the market in equity exposure and your rebalancing didn't reset that. So you can have volatility loss.skierincolorado wrote: ↑Sun Oct 17, 2021 8:43 pm Beginning with 50k of equity, and a 150/150 stock/bond AA, one should be able to rebalance back to the target 150/150 AA no matter what the market does. If both bonds and stocks do poorly, you might end up a little over-target on bonds because the minimum increment for ZF is 100k. Other than that though, the target AA can always be maintained - and most importantly the stock allocation can always be rebalanced to 150%.
Simply rebalancing your AA to 150/150 doesn't prevent volatility from shrinking your equity exposure relative to market returns. What you'd want to do is put $5k cash into UPRO.
No, no, no and no. At least not for most HFEA investors should they so choose. Why in the above example would you sell leveraged bonds after they have suffered a NAV loss? That defies bond 101. Try to hold until they recover at the duration (or sooner if rates come down).skierincolorado wrote: ↑Sun Oct 17, 2021 9:12 pm Whether original HFEA, or modified, this will require sacrificing the bond portion of the portfolio, if bonds are not providing the expected negative correlation.
Ignore bonds for a second and view it if HFEA is only a slice of your portfolio.
Say for equities you had:
$25,000 UPRO (3X LETF)
$25,000 VOO
---------------------
=$100,000 equity exposure
And assume we hit the HFEA kryptonite of sideways returns, highish volatility and no chance to rebalance from bonds due to rate hikes as in the example above where the LEFT fund loses 17.1% or so due to sideways equity movement (0% return) and volatility.
If, for example, the $25k of UPRO (3X LETF) is down to $20,725 due to the 17.1% volatility loss, you can rebalance $6412.50 from VOO and you will still have $100,000 exposure in equities [(20,725 +6412.5) *3 +(25,000-6412.50)*1].
You will have neither sacrificed bonds at an inopportune time (NAV loss due to rising rates), nor have you reduced your equity exposure solely due to market volatility.
That's my suggestion anyway. Of course if things go sideways long enough, that $25,000 in VOO isn't going to be enough. I only used $25,000 to keep the example simple.
I am generally keeping my HFEA allocation separate, but would be willing to use VTI holdings in the kryptonite case if UPRO is badly underperforming 3X the market and it's not possible to effectively rebalance from bonds.
Perhaps that's why I don't see ITT as being so advantageous to LTT. They aren't my only source to rebalance from if for instance we hit a few years of rising rates.
So the alternative is to take money out of HFEA during periods of low-volatility boost. This is essentially a market timing strategy of increasing our oveall leverage (by increasing the % of nw allocated to leveraged strategies) when markets go down. I've backtested such strategies, and they are of modest benefit. But since volatility decay has not been much of an issue over the last 30+ years, the benefit is small. You eliminate volatility drag, but you also eliminate low-volatility boost. So the effect is nearly a wash. If you only eliminate volatility drag (by increasing leverage when markets go down), but do not eliminate low-volatility boost (by decreasing leverage when markets go up), you just end up becoming more leveraged over time, likely beyond desired target/tolerable leverage.
Thanks for sharing, I'll be watching with some interest as STT definitely plays better with inflation than LTT.adamhg wrote: ↑Tue Nov 09, 2021 5:11 pm Inspired by a side conversation with skier in the mHFEA thread, I started a new play account with SHY 82C LEAPs which currently have an approximate 20.8x leverage ratio. Running it 40% UPRO 60% SHY LEAPs for an effective 120% SPY / 1200% STT allocation. Will track progress here
Start date: 11/9/21
Approach: Fixed allocation - 40/60 UPRO/SHY LEAPs
Rebalancing frequency: Quarterly
Return (total / YTD): 0%
Initial contribution: $23k
Portfolio location: TDA
https://www.portfoliovisualizer.com/bac ... 10_3=-1248
I would be extremely cautious messing around with technical indicators to determine the allocation of your portfolio. Not only is it not grounded in sound investing principles, but also you are going to incur hefty tax liabilities if you are doing this outside a non-reg account.Martzee wrote: ↑Sat Nov 27, 2021 11:53 am Start date: 11/27/21
Approach: Variable allocation* - 45/55 SPXL/TMF
Rebalancing frequency: Quarterly*
Return (total / YTD): 0%/0%
Initial contribution: 15% of portfolio Net-Liq (~ $15k)
Portfolio location: TastyWorks
*My initial allocation is 45 SPXL / 55 TMF.
When the market closes below 50-day MA, I adjust allocation to 40 SPXL / 60 TMF
When the market closes below 200-day MA, I adjust allocation to 0 SPXL / 100 TMF
When the market closes 20% or more below ATH or 200-day MA, I change the allocation to 100 SPXL / 0 TMF
When the market closes above 200-day MA, I change the allocation to 45 SPXL / 55 TMF
I trade as an entity, so I think, I can handle the taxation. Also, the indicators do not happen too often. The quarterly rebalancing will happen more often than re-allocating based on the MA. In choppy markets around the MAs, I will keep allocation at the level the market is in. But will see how that goes. I will be posting my results.I would be extremely cautious messing around with technical indicators to determine the allocation of your portfolio. Not only is it not grounded in sound investing principles, but also you are going to incur hefty tax liabilities if you are doing this outside a non-reg account.
That may be true that you would be rebalancing less frequently using MAs, but when you rebalance, you're rebalancing everything. With quarterly rebalancing, you're rebalancing 1-5%, 10% tops. Good luck.Martzee wrote: ↑Sat Nov 27, 2021 8:06 pmI trade as an entity, so I think, I can handle the taxation. Also, the indicators do not happen too often. The quarterly rebalancing will happen more often than re-allocating based on the MA. In choppy markets around the MAs, I will keep allocation at the level the market is in. But will see how that goes. I will be posting my results.I would be extremely cautious messing around with technical indicators to determine the allocation of your portfolio. Not only is it not grounded in sound investing principles, but also you are going to incur hefty tax liabilities if you are doing this outside a non-reg account.
Do you do the weighted avg on in the index or LETF?ocrtech wrote: ↑Wed Dec 01, 2021 8:46 am Start date: 4/12/2019
Approach: Inverse Volatility based on exponential weighting of 60 day lookback. UPRO guardrails from 25% to 65%.
Rebalancing frequency: Monthly
Contribution: Dollar Cost Average on a monthly basis from Apr - Sep for a total investment of $68,560
Return (total): $151,113
Return %: 120%
Comparing this investment against a similar amount invested in the S&P500 currently shows a 28% higher return.
If the volatility is causing you urges to do something without a rational basis, then I would say HFEA probably isn't for you.bgf wrote: ↑Fri Dec 03, 2021 1:18 pm so since i started this recently, i've had the urge to rebalance twice already. the first time about a week ago, and then this afternoon. i figure if i can 'bank' a few percentage points into UPRO on these unusually volatile down days where TMF is doing its job, then that 'combats' the 'volatility decay' everyone discusses. it puts me back on the 50/50 allocation which is my plan, and potentially sets me up for a better haul when/if the SP500 rebounds.
anyone else have this issue? how detrimental to the strategy could it be? i know there has been lots of backtesting and generally quarterly rebalancing is accepted, and thats my plan. guess i didn't stick with it for very long!
so far this is outperforming my benchmark VT by a few percentage points already. TMF doing its job!
How is rebalancing not founded on a rational basis?DMoogle wrote: ↑Fri Dec 03, 2021 1:23 pmIf the volatility is causing you urges to do something without a rational basis, then I would say HFEA probably isn't for you.bgf wrote: ↑Fri Dec 03, 2021 1:18 pm so since i started this recently, i've had the urge to rebalance twice already. the first time about a week ago, and then this afternoon. i figure if i can 'bank' a few percentage points into UPRO on these unusually volatile down days where TMF is doing its job, then that 'combats' the 'volatility decay' everyone discusses. it puts me back on the 50/50 allocation which is my plan, and potentially sets me up for a better haul when/if the SP500 rebounds.
anyone else have this issue? how detrimental to the strategy could it be? i know there has been lots of backtesting and generally quarterly rebalancing is accepted, and thats my plan. guess i didn't stick with it for very long!
so far this is outperforming my benchmark VT by a few percentage points already. TMF doing its job!
How frequently you rebalance isn't going to make a large impact on the volatility decay... not compared to the fact that both of these ETFs rebalance themselves daily. As for how harmful doing an off-cycle rebalancing schedule is to the whole strategy... hard to say, but probably doesn't make THAT big a difference either way.