Decided To Move Towards Dr. Bernstein's If You Can Portfolio

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invest2bfree
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Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
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Blue456
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Blue456 »

invest2bfree wrote: Fri Jun 18, 2021 4:25 pm Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
At the point that you added 1/3rd EDV this no longer is Dr. Bernstein's portfolio. He advocated short term treasuries or T bills for a reason...
chazas
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by chazas »

I mean, that's overall well within Boglehead parameters. 66.6/33.3, with 50/50 US and international. A bit higher on international than most probably, and EDV carries additional interest rate risk and is more volatile, but you're still not old.
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Noobvestor
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Noobvestor »

It's a big change but I think in the right direction. I would question using EDV though - yes, it can be a great diversifier in a typical stock crash, but what if we have inflation, rising rates and poor stock performance? Have you considered, say, a combination of VGLT and VTIP? That would give you a combination of deflation/inflation protection and reduce the impact of rising rates by lowering overall duration.

For context: BND has a duration of around 5 years IIRC, while EDV is around 5 times that (~25 years). It is very rate sensitive.
"In the absence of clarity, diversification is the only logical strategy" -= Larry Swedroe
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by UpperNwGuy »

Are you planning to retire in 25 years? That's the duration of EDV.
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invest2bfree
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

UpperNwGuy wrote: Fri Jun 18, 2021 4:38 pm Are you planning to retire in 25 years? That's the duration of EDV.
I like the negative Correlation of EDV with 66% Equity portfolio.
In a crash scenario EDV could reduce my volatility.


Personally plan to use this allocation even in retirement, no changes forever.

Re-balance once year like he suggested and call it a day.
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youngpleb
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by youngpleb »

EDV? Prepare to be obliterated once rates start to rise. I would definitely stick to short/intermediate term for the bonds.
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invest2bfree
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

Do you know the interest rates in Greece?

0.99%

We are at 2.5% and why is that?

There is more risk of deflation than inflation.
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UM2009
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by UM2009 »

invest2bfree wrote: Fri Jun 18, 2021 5:15 pm There is more risk of deflation than inflation.
Coincidentally, Bernstein has regularly said the opposite.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Robot Monster »

youngpleb wrote: Fri Jun 18, 2021 5:07 pm EDV? Prepare to be obliterated once rates start to rise.
There is an argument to be made that "one way an investor can minimize their interest rate risk is to match the average duration of their bond holdings with their investment horizon. In plain English, long-term investors reduce their interest rate risk by owning long-term bonds..." For more information, see link

According to the link, someone who is 46, like the OP, can use EDV.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Silk McCue »

invest2bfree wrote: Fri Jun 18, 2021 5:15 pm Do you know the interest rates in Greece?

0.99%

We are at 2.5% and why is that?

There is more risk of deflation than inflation.
Do you live in Greece? Why would you bring up Greece? That has nothing to do with our reality.

No one that I know of believes we are more likely to experience deflation.

Good luck.

Cheers
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Artsdoctor »

invest2bfree wrote: Fri Jun 18, 2021 4:25 pm Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
I can assure you that your plan is NOT a Bill Bernstein portfolio. He would run from EDV faster than you could shake a stick at him. That ETF has a duration of 24 years!

You astutely point out that you do not have it in you to withstand the volatility of a 100% stock portfolio. However, you will be sorely disappointed when you see the volatility of EDV in a rising rate environment.

Using EDV is not a little tweak.
absolute zero
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by absolute zero »

OP - do you have a specific question?

If you are just looking for general thoughts on your portfolio, my take is that it’s a fine portfolio. I think the only adjustment I would make would be to swap EDV for a long term treasury fund (non-stripped) like VGLT instead. Reason is that EDV has more volatility than an emerging markets equity fund. You may be comfortable with it now, but hard to tell what your comfort level will be in 10 or 15 years. Just a thought. I do agree that the portfolio is more diversified with EDV though.
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invest2bfree
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

absolute zero wrote: Fri Jun 18, 2021 5:56 pm OP - do you have a specific question?

If you are just looking for general thoughts on your portfolio, my take is that it’s a fine portfolio. I think the only adjustment I would make would be to swap EDV for a long term treasury fund (non-stripped) like VGLT instead. Reason is that EDV has more volatility than an emerging markets equity fund. You may be comfortable with it now, but hard to tell what your comfort level will be in 10 or 15 years. Just a thought. I do agree that the portfolio is more diversified with EDV though.
Thanks would zroz better than edv?
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JoMoney
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by JoMoney »

invest2bfree wrote: Sat Jun 19, 2021 8:49 am
absolute zero wrote: Fri Jun 18, 2021 5:56 pm OP - do you have a specific question?

If you are just looking for general thoughts on your portfolio, my take is that it’s a fine portfolio. I think the only adjustment I would make would be to swap EDV for a long term treasury fund (non-stripped) like VGLT instead. Reason is that EDV has more volatility than an emerging markets equity fund. You may be comfortable with it now, but hard to tell what your comfort level will be in 10 or 15 years. Just a thought. I do agree that the portfolio is more diversified with EDV though.
Thanks would zroz better than edv?
To what objective would you want it to be "better" at?
ZROZ has a higher expense ratio, and is more volatile (higher standard deviation) because it has a higher duration.

They're both more volatile then a broad stock portfolio, but they have been less "correlated" with stocks, and the dramatic fall in interest rates has gave them decent returns in the past. Those aren't options I would pick for the safe/bond portion of my portfolio, and I would not expect there returns to be anything like the past.
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Outer Marker
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Outer Marker »

I'm a big fan of Dr. Bernstein, but not this particular idea. I think he wanted to make it as stone simple and possible, and just say 1/3 each. That is very bond heavy - particularly for a young investor - and particularly when bonds are yielding nothing and have significant interest rate risk. IMO, your modification of the Bond holding is going exactly the wrong direction - I'd go shorter, not longer.

To me, a better, nearly equally simple portfolio would be:

50% Total Stock Market
25% Total International Stock
25% Bond (and I'd go Short Term Index, vs TBM, but take your pick . . )
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Beensabu »

You can still use VT.

2/3 VT and 1/3 bond

As long as you actually rebalance both ways and don't freak out when your bond fund loses value, overall volatility of the portfolio will probably be about the same with EDV as BND. Shocking.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by arcticpineapplecorp. »

invest2bfree wrote: Fri Jun 18, 2021 4:25 pm I am 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
what coming volatility? Do you know the future? That being said, stocks are usually (to be expected) volatile. That's the nature of the beast. No guts, no glory. Nevermind the supposed coming volatility, how did you handle the past volatility when the stock market fell 33% between mid Feb-Mid March 2020? That tells you what you need to know.

you design your portfolio to the maximum pain point you can tolerate. Using 50% declines (worst since the Great Depression) what's your maximum loss you can tolerate:

Image

that tells you your willingness to take risk.

Your need and ability are also factors in the amounts of risk you choose:

https://www.cbsnews.com/news/asset-allo ... -you-take/

https://www.cbsnews.com/news/asset-allo ... tolerance/

https://www.cbsnews.com/news/asset-allo ... -you-need/

https://www.cbsnews.com/news/asset-allo ... ing-goals/
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by chem6022 »

I used VGLT instead of EDV for a similar purpose. In my backtesting, the long-term treasuries tended to be similar or better than extended duration in complementing equity. Also long-term treasuries were much less scary and impacted the portfolio much less during periods of rising interest rates. Now I am couple of years from retirement, I have started adding VTIP for short-term TIPS. I would also recommend you go ahead and start maxing your annual i-bonds limit.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

Beensabu wrote: Sat Jun 19, 2021 12:36 pm You can still use VT.

2/3 VT and 1/3 bond

As long as you actually rebalance both ways and don't freak out when your bond fund loses value, overall volatility of the portfolio will probably be about the same with EDV as BND. Shocking.
US is already 57% VT.
One more reason for my change is I dont want any country including my home country over 50% of my portfolio.

EDV's capital gains distributions gives me pause.

Did not take that into account.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Gaston »

Outer Marker wrote: Sat Jun 19, 2021 12:15 pm I'm a big fan of Dr. Bernstein, but not this particular idea. I think he wanted to make it as stone simple and possible, and just say 1/3 each. That is very bond heavy - particularly for a young investor - and particularly when bonds are yielding nothing and have significant interest rate risk.
I agree. Not to complicate things, but maybe take a look at Rick Ferri’s “Core 4” portfolio suggestions. Rick is a Boglehead.

https://core-4.com/
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by reln »

invest2bfree wrote: Fri Jun 18, 2021 4:25 pm Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
Stick with your 100% stocks. You'll be happy to have done so in 20+ years.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by Outer Marker »

Gaston wrote: Sat Jun 19, 2021 9:07 pm
Outer Marker wrote: Sat Jun 19, 2021 12:15 pm I'm a big fan of Dr. Bernstein, but not this particular idea. I think he wanted to make it as stone simple and possible, and just say 1/3 each. That is very bond heavy - particularly for a young investor - and particularly when bonds are yielding nothing and have significant interest rate risk.
I agree. Not to complicate things, but maybe take a look at Rick Ferri’s “Core 4” portfolio suggestions. Rick is a Boglehead.

https://core-4.com/
I do not think it is necessary to add a separate sector bet on REITS. They are already part of TSM, are highly correlated to it, and have under-performed it. Stick with three funds.
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invest2bfree
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

I agree REITS or any other form of investments are good for active investors who are speculating on sectors.

For a truly passive investor 3 fund is the best.
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DB2
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by DB2 »

invest2bfree wrote: Fri Jun 18, 2021 4:25 pm Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
Someone with a 30+ year time horizon until retirement should be 100% global equities in my view. Usually this means someone in their 20 to 30s who may have a relatively low amount of initial savings who shouldn't be bothered by large drawdowns (this may require behavior changes or understanding). If they are too bothered, then maybe something like LifeStrategy Growth and gives some bond cushion or Target Date fund. An all in one fund.

But Paul Merriman has done some good backtesting indicating how even a small amount of bond allocation from the outset of a long investing horizon slows down returns over decades. The difference can be staggering.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

DB2 wrote: Sun Jun 20, 2021 12:14 pm
invest2bfree wrote: Fri Jun 18, 2021 4:25 pm Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
Someone with a 30+ year time horizon until retirement should be 100% global equities in my view. Usually this means someone in their 20 to 30s who may have a relatively low amount of initial savings who shouldn't be bothered by large drawdowns (this may require behavior changes or understanding). If they are too bothered, then maybe something like LifeStrategy Growth and gives some bond cushion or Target Date fund. An all in one fund.

But Paul Merriman has done some good backtesting indicating how even a small amount of bond allocation from the outset of a long investing horizon slows down returns over decades. The difference can be staggering.
Personally easier said than done.
When you have decent nest egg you can sit tight.

As an young investor your entire savings is in the market then 2000-2003 or 2007-2009 hits then you easily give up.
I have seen many investors go to treasuries in 2009 bottom.
36% (IRA) - Individual LT Corporate Bonds , 33%(taxable) - schy, 33%(taxable) - SCHD Dividend Growth
DB2
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by DB2 »

invest2bfree wrote: Sun Jun 20, 2021 12:24 pm
DB2 wrote: Sun Jun 20, 2021 12:14 pm
invest2bfree wrote: Fri Jun 18, 2021 4:25 pm Hello,

I have decided to move away from 100% VT portfolio to balanced three fund portfolio recommended by Dr. Bernstein for millennials.

https://www.amazon.com/gp/product/B00JC ... taft_p1_i8

His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.

I decided to tweak it a little bit, instead of total bond use EDV for my bonds.

Basically 1/3 VTI, 1/3rd VXUS and 1/3rd EDV.

For my 401k
1/3rd FZILX, 1/3rd FZROX and 1/3rd FNBGX.

Iam 46 years old and feel that I wont be able to handle the coming volatility with a 100% stocks portfolio.
Someone with a 30+ year time horizon until retirement should be 100% global equities in my view. Usually this means someone in their 20 to 30s who may have a relatively low amount of initial savings who shouldn't be bothered by large drawdowns (this may require behavior changes or understanding). If they are too bothered, then maybe something like LifeStrategy Growth and gives some bond cushion or Target Date fund. An all in one fund.

But Paul Merriman has done some good backtesting indicating how even a small amount of bond allocation from the outset of a long investing horizon slows down returns over decades. The difference can be staggering.
Personally easier said than done.
When you have decent nest egg you can sit tight.

As an young investor your entire savings is in the market then 2000-2003 or 2007-2009 hits then you easily give up.
I have seen many investors go to treasuries in 2009 bottom.
I didn't touch my 401K through the 2008-9 crash (37 at the time). I didn't have much money in it (much to me anyway). However, I couldn't emotionally tolerate that drawdown with a much larger nestegg today and do I have bond allocation. I agree though, it depends on the person.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by zuma »

invest2bfree wrote: Fri Jun 18, 2021 4:25 pm His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.
This is my early retirement portfolio. Age 44. No more TIPS, no more REITs, just a simple three-fund. Feels just about perfect to me.
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by invest2bfree »

zuma wrote: Sun Jun 20, 2021 12:36 pm
invest2bfree wrote: Fri Jun 18, 2021 4:25 pm His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.
This is my early retirement portfolio. Age 44. No more TIPS, no more REITs, just a simple three-fund. Feels just about perfect to me.
BND contains lot corporate bonds which behave like equity.

Compare BND vs TLT in March 2020 then you would know why TLT is preferred.
We were lucky to snap back in 2020.

TLT went from 83 in 2007 in 120 in 2009, when stock market lost 50%.

Negative Correlation with the stock market is a powerful tool.
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zuma
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Re: Decided To Move Towards Dr. Bernstein's If You Can Portfolio

Post by zuma »

invest2bfree wrote: Sun Jun 20, 2021 12:51 pm
zuma wrote: Sun Jun 20, 2021 12:36 pm
invest2bfree wrote: Fri Jun 18, 2021 4:25 pm His recommendation is 1/3rd US Stock, 1/3 rd XUS and 1/3rd Total Bond.
This is my early retirement portfolio. Age 44. No more TIPS, no more REITs, just a simple three-fund. Feels just about perfect to me.
BND contains lot corporate bonds which behave like equity.

Compare BND vs TLT in March 2020 then you would know why TLT is preferred.
We were lucky to snap back in 2020.

TLT went from 83 in 2007 in 120 in 2009, when stock market lost 50%.

Negative Correlation with the stock market is a powerful tool.
Also a fine portfolio. :happy
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