Switching half my portfolio to treasuries?

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zetsui
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Switching half my portfolio to treasuries?

Post by zetsui »

1) Lets say I think the market is grossly overvalued. I'm around 25% short term treasuries right now. I want to stay in the market. Bonds in particular are tricky for me. If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?

2) So how should one allocate treasuries or sell them? Its not like the Fed gurantees there wont be a downturn before their interest raise rise, so should i allocate now and then immedaitely sell my existing treasuries for higher rate treasuries (or I guess the indeces resprsenting them) on a hike announcment?

3)Lump sum, DCA, does it matter more with bond, doesn't seem to matter with equities?
grkmec
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Re: Switching half my portfolio to treasuries?

Post by grkmec »

My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
Whakamole
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Re: Switching half my portfolio to treasuries?

Post by Whakamole »

grkmec wrote: Wed Jul 28, 2021 6:08 am My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
Any bonds at all?
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Re: Switching half my portfolio to treasuries?

Post by muffins14 »

If you are 100% convinced that the market is going to drop such that your want to make this non-optimal decision, you shouldn’t care if rates rise a little before the drop because rates will fall post-drop and your treasuries will increase in value.

Good luck finding out when the bottom is so you can re-invest, though. Generally, your idea is not a good one for both expected outcomes and behavioral reasons
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Joey Jo Jo Jr
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Re: Switching half my portfolio to treasuries?

Post by Joey Jo Jo Jr »

I’m far, far from an expert, but I’ll try to see if I can at least help a little based on my understanding. But maybe we’ll both be directed to an advisor and/or crystal ball.

When the Fed manipulates the Fed funds rate it should have an impact on the short term treasuries, as those durations are less impacted by expectations on inflation and future growth. So I would consider moving out of those in anticipation of a rate hike at some point, especially if you have a stable value fund that would likely have a higher yield than the short term treasuries (sounds like you are talking about an employer retirement plan). The longer term the treasury, the more it will be impacted by expected inflation and growth, so a rate hike might actually benefit such treasuries by putting the “breaks” on inflation and growth expectations.

Ultimately treasury yields will be priced based on supply and demand, but expectations are a part of why investors choose some treasuries over others or perhaps none at all. I happen to think that intermediate to long term treasuries have great portfolio value as a cushion against stock market declines (just look to how they performed in March 2020), which is why you seem to be interested in them too. One thing I’m not sure of is whether the 3-5 duration is long enough to get that protection while also insulating from an eventual rate hike. But I’d rather be a 3-5 years than short term if that helps.
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zetsui
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Re: Switching half my portfolio to treasuries?

Post by zetsui »

Joey Jo Jo Jr wrote: Wed Jul 28, 2021 7:42 am I’m far, far from an expert, but I’ll try to see if I can at least help a little based on my understanding. But maybe we’ll both be directed to an advisor and/or crystal ball.

When the Fed manipulates the Fed funds rate it should have an impact on the short term treasuries, as those durations are less impacted by expectations on inflation and future growth. So I would consider moving out of those in anticipation of a rate hike at some point, especially if you have a stable value fund that would likely have a higher yield than the short term treasuries (sounds like you are talking about an employer retirement plan). The longer term the treasury, the more it will be impacted by expected inflation and growth, so a rate hike might actually benefit such treasuries by putting the “breaks” on inflation and growth expectations.

Ultimately treasury yields will be priced based on supply and demand, but expectations are a part of why investors choose some treasuries over others or perhaps none at all. I happen to think that intermediate to long term treasuries have great portfolio value as a cushion against stock market declines (just look to how they performed in March 2020), which is why you seem to be interested in them too. One thing I’m not sure of is whether the 3-5 duration is long enough to get that protection while also insulating from an eventual rate hike. But I’d rather be a 3-5 years than short term if that helps.
This is closer what I'm looking for. Some of the other answers here are unnecessarily insulting and did not read the OP. Never 'predicted' the market only more defensive in nature, and wanted to stay in it.

Thank you!
Robot Monster
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Re: Switching half my portfolio to treasuries?

Post by Robot Monster »

zetsui wrote: Wed Jul 28, 2021 5:21 am ...wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their interest rate hike occurs? My old bonds worth less as they are not as high a rate?
There's an excellent post by nisiprius that examines what happens to bonds when interest rates rise that you should check out. link

Also from Nisiprius, "'Plan on holding a bond fund for at least its average duration and you will be pretty safe' is a good rule of thumb." link

And...

"There is a rule of thumb--for a bond, it is exact, but for a bond fund it is only a rule of thumb. It is: the "duration" of the bond fund is the period of time over which short- and long-term effects of an interest rate increase balance out. An interest rate increase is bad for an investor who holds for less than the duration, good an investor who holds for longer than that." link
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Re: Switching half my portfolio to treasuries?

Post by retiredjg »

zetsui wrote: Wed Jul 28, 2021 5:21 am 1) Lets say I think the market is grossly overvalued. I'm around 25% short term treasuries right now. I want to stay in the market.
It is common for investors to think like this, but it frequently results in very poor portfolio performance. This is because you have to time two things just right.

First, you have to know when to increase your bonds. Then you have to figure out when to go back to a higher percentage of stocks. Some people get the first one right. Some get the second one right. Very few get them both right. The others end up with less money in the end.

It would be better to decide on a stock to bond ratio that you can be comfortable with during both the good times and the bad times and just not flip back and forth. It is not unlike finding a spouse.

But let's assume you mean that you are going to increase your bond allocation and stay there. Yes, the bond funds in your portfolio will lose some value as interest rates go up, but they will also start paying you higher dividends because interest rates are higher. This is just how bond funds work.

If you happen to be holding individual bonds instead of bond funds, the individual bonds just keep on doing whatever they were doing. If you hold to maturity, you have not lost anything.
Nowizard
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Re: Switching half my portfolio to treasuries?

Post by Nowizard »

Bonds have produced equity-like returns in the fairly recent past, changing the dynamic for some as to their purpose. As others have said, for long term investors, any short-term loss will be recovered based on the interaction of time and duration of a bond fund. When there is uncertainty, there is greater anxiety, but the best approach is often to do nothing based on individual circumstances. Our bond funds are essentially flat this year, for example, but provide protection from substantial portfolio loss. Though providing little or no immediate return, sometimes you gain the most by losing the least, particularly when anticipating a market downturn.

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Re: Switching half my portfolio to treasuries?

Post by grkmec »

Whakamole wrote: Wed Jul 28, 2021 7:15 am
grkmec wrote: Wed Jul 28, 2021 6:08 am My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
Any bonds at all?
I got about 15% allocation to High Yield Bonds and CLO Equity. I also own quite a bit of commercial real estate that has bond like characteristics but produces equity like returns.
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rob
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Re: Switching half my portfolio to treasuries?

Post by rob »

grkmec wrote: Wed Jul 28, 2021 6:08 am My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
So what do you suggest... 100% stock is basically all that's left for that bar....
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Re: Switching half my portfolio to treasuries?

Post by NewMoneyMustBeSmart »

zetsui wrote: Wed Jul 28, 2021 5:21 am 1) Lets say I think the market is grossly overvalued.
"I think the market is grossly overvalued." There you go.

Do you have a newsletter I can subscribe to? I'd love to get input from one who knows where the market will go.
-- | Few are those who see with their own eyes and feel with their own hearts - Einstein | *Everything I write here is an unreliable opinion*
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Re: Switching half my portfolio to treasuries?

Post by nisiprius »

zetsui wrote: Wed Jul 28, 2021 5:21 am 1) Lets say I think the market is grossly overvalued.
Let's say you do.

I think lots of things about the market. But I don't act on them. I am convinced that it better not to act on what I "think" than to act on it.
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Re: Switching half my portfolio to treasuries?

Post by nisiprius »

Nowizard wrote: Wed Jul 28, 2021 9:32 am ...Bonds have produced equity-like returns in the fairly recent past...
When? Not any time that I can remember within my investing career. What am I forgetting? Unless you just mean that there have been times when equities were making nothing at all, e.g. 2000-2009, so then, yes, during that particular period bonds were producing "equity-like" returns.
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Re: Switching half my portfolio to treasuries?

Post by UpperNwGuy »

zetsui wrote: Wed Jul 28, 2021 5:21 am Bonds in particular are tricky for me. If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?
I don't think you understand bonds very well. If you hold them for longer than their duration, you'll be fine.
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Re: Switching half my portfolio to treasuries?

Post by smectym »

Your goal of capital preservation is legitimate. However, the allergy to bond allocation premised on today’s low interest rates is overdone. The bond market is complex. I offload how to navigate it to the bond pros at Vanguard/Wellington through investing in the low-cost active funds they manage (the bond “sleeve” of VWIAX for instance). Believe me, they know what they’re doing. They know everything we know about low rates etc., plus a lot we don’t know about a portfolio of 1000+ bonds. Rates have been low for a while. They keep generating positive returns and a steady stream of dividends that aren’t 0.01% by a long shot
learntoinvest123
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Re: Switching half my portfolio to treasuries?

Post by learntoinvest123 »

Markets have decoupled from interest rates. At this point of time treasury yields (10 year) should be in high 2% , but they are in 1.2% range. This is an inflation game at this point of time as Fed has signaled they will not raise Fed funds rates. So if you see high durable inflation, then your scenario will play out well.

You could sell short term treasuries and buy long term ones cheaper or simply buy the stock market as it crashes when Fed raises rates. If inflation does not show up or is low, markets could just keep climbing while you make negative returns on your short term treasuries.
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Re: Switching half my portfolio to treasuries?

Post by BJJ_GUY »

grkmec wrote: Wed Jul 28, 2021 7:20 pm I got about 15% allocation to High Yield Bonds and CLO Equity. I also own quite a bit of commercial real estate that has bond like characteristics but produces equity like returns.

Out of curiosity, how are you accessing CLO equity and CMBS?
Johnathon Livingston
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Re: Switching half my portfolio to treasuries?

Post by Johnathon Livingston »

When rates rise bond prices drop. But the bonds claw back their value as the rates drop and they mature. Bonds in a fund are constantly maturing and constantly being bought to replace them. And short term recover quickly.
Run your bond fund through portfolio visualizer through different rate hike periods and see how it did.

Have you considered target date funds and balanced funds that will take care of maintaining an allocation for you? Setting it and forgetting it is often wise. Also, there is a case to be made for active management of bonds. I’m personally not a fan of bond index funds although I own some through a target date fund. I recently purchased Wellington because I like the fund as a whole, like the active management of the bond portion, and also think it’s a great fund for when speculative growth investing gives way to market correction and drawdown. Something to consider if doing it yourself is a burden.
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Re: Switching half my portfolio to treasuries?

Post by grkmec »

BJJ_GUY wrote: Wed Jul 28, 2021 9:15 pm
grkmec wrote: Wed Jul 28, 2021 7:20 pm I got about 15% allocation to High Yield Bonds and CLO Equity. I also own quite a bit of commercial real estate that has bond like characteristics but produces equity like returns.

Out of curiosity, how are you accessing CLO equity and CMBS?
I didn’t say CMBS. I said high yield and CLO equity. My wife is employed by a large alternative asset manager so I have access to these these types of products for zero fees.
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Re: Switching half my portfolio to treasuries?

Post by grkmec »

rob wrote: Wed Jul 28, 2021 7:31 pm
grkmec wrote: Wed Jul 28, 2021 6:08 am My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
So what do you suggest... 100% stock is basically all that's left for that bar....
I am not making any specific suggestions. But if you are asking my current asset allocation, it looks something like this:

Private Equity = 30%
Public Equities (VTSAX or equiv.) = 25%
Commercial Real Estate (NNN) = 15%
High Yield Bonds / CLO Equity = 15%
Residential Real Estate = 10%
Bitcoin = 5%
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Re: Switching half my portfolio to treasuries?

Post by BJJ_GUY »

grkmec wrote: Wed Jul 28, 2021 11:34 pm
rob wrote: Wed Jul 28, 2021 7:31 pm
grkmec wrote: Wed Jul 28, 2021 6:08 am My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
So what do you suggest... 100% stock is basically all that's left for that bar....
I am not making any specific suggestions. But if you are asking my current asset allocation, it looks something like this:

Private Equity = 30%
Public Equities (VTSAX or equiv.) = 25%
Commercial Real Estate (NNN) = 15%
High Yield Bonds / CLO Equity = 15%
Residential Real Estate = 10%
Bitcoin = 5%
If you aren't comfortable saying the firm/fund names, that's fine. I was more curious how you are accessing these asset classes. Are you a qualified investor, able to invest in private funds? I know there aren't any true private equity vehicles available to retail investors, but wasn't sure why you may have found for CLO equity and the real estate assets.
grkmec
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Re: Switching half my portfolio to treasuries?

Post by grkmec »

BJJ_GUY wrote: Wed Jul 28, 2021 11:42 pm
grkmec wrote: Wed Jul 28, 2021 11:34 pm
rob wrote: Wed Jul 28, 2021 7:31 pm
grkmec wrote: Wed Jul 28, 2021 6:08 am My IPS says to never invest in assets with negative expected real rates of return. So I would have zero in treasuries. I can’t fathom doing what you are doing.
So what do you suggest... 100% stock is basically all that's left for that bar....
I am not making any specific suggestions. But if you are asking my current asset allocation, it looks something like this:

Private Equity = 30%
Public Equities (VTSAX or equiv.) = 25%
Commercial Real Estate (NNN) = 15%
High Yield Bonds / CLO Equity = 15%
Residential Real Estate = 10%
Bitcoin = 5%
If you aren't comfortable saying the firm/fund names, that's fine. I was more curious how you are accessing these asset classes. Are you a qualified investor, able to invest in private funds? I know there aren't any true private equity vehicles available to retail investors, but wasn't sure why you may have found for CLO equity and the real estate assets.
I am a qualified investor and my wife works at a major alternative asset manger (eg. Blackstone, KKR, Carlyle, Bain Capital). That’s the majority of my private equity, high yield and CLO equity exposure.

My real estate assets are buildings I have sourced and purchased directly. I own multiple NNN single tenant lease properties (eg. Sherwin Williams and Dollar General).
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Beensabu
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Re: Switching half my portfolio to treasuries?

Post by Beensabu »

zetsui wrote: Wed Jul 28, 2021 5:21 am If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?
Bond funds buy new bonds too (and newer old bonds), so they'll end up picking up the bonds with the higher yields (if that's what is happening).

That's why:
Robot Monster wrote: Wed Jul 28, 2021 9:20 am "An interest rate increase is bad for an investor who holds for less than the duration, good an investor who holds for longer than that." link
and
UpperNwGuy wrote: Wed Jul 28, 2021 8:11 pm If you hold them for longer than their duration, you'll be fine.
Rates go up, NAV bumps down, then eventually goes back up again. Meanwhile, the bond fund has picked up bonds with a higher yield, so you have bonds returning more income (or more dividends to reinvest), which is good for you going forward.

Conversely, when rates go down, the bond funds still buy new bonds then too, so they end up picking up the bonds with the lower yields.

Rates go down, NAV bumps up, then eventually goes back down again. Meanwhile, the bond fund has picked up bonds with a lower yield, so you have bonds returning less income, which is not as good for you going forward.

It's the way of the bond fund.

Side note: Rates have been low for so long (10+ years), that there's not too much difference in yield between the old bonds and the new bonds when looking at short-term and shorter end of mid-term treasuries. The return has been flat. This is a reality of sustained low rates. You're better off with a total bond fund that's still holding onto some older longer term higher yielding bonds.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
tomsense76
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Re: Switching half my portfolio to treasuries?

Post by tomsense76 »

Would suggest reading the 2 articles here ( viewtopic.php?t=352948 )
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zetsui
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Re: Switching half my portfolio to treasuries?

Post by zetsui »

Beensabu wrote: Thu Jul 29, 2021 12:17 am
zetsui wrote: Wed Jul 28, 2021 5:21 am If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?
Bond funds buy new bonds too (and newer old bonds), so they'll end up picking up the bonds with the higher yields (if that's what is happening).

That's why:
Robot Monster wrote: Wed Jul 28, 2021 9:20 am "An interest rate increase is bad for an investor who holds for less than the duration, good an investor who holds for longer than that." link
and
UpperNwGuy wrote: Wed Jul 28, 2021 8:11 pm If you hold them for longer than their duration, you'll be fine.
Rates go up, NAV bumps down, then eventually goes back up again. Meanwhile, the bond fund has picked up bonds with a higher yield, so you have bonds returning more income (or more dividends to reinvest), which is good for you going forward.

Conversely, when rates go down, the bond funds still buy new bonds then too, so they end up picking up the bonds with the lower yields.

Rates go down, NAV bumps up, then eventually goes back down again. Meanwhile, the bond fund has picked up bonds with a lower yield, so you have bonds returning less income, which is not as good for you going forward.

It's the way of the bond fund.

Side note: Rates have been low for so long (10+ years), that there's not too much difference in yield between the old bonds and the new bonds when looking at short-term and shorter end of mid-term treasuries. The return has been flat. This is a reality of sustained low rates. You're better off with a total bond fund that's still holding onto some older longer term higher yielding bonds.
Isn't the corporate bond market dangerous though compared to treasuries? I always thought bogle's asset allocation was baed on treasuries,no?
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Re: Switching half my portfolio to treasuries?

Post by muffins14 »

“Dangerous” is a bit harsh. You do pick up credit/default risk when investing in corporate bonds, but I’d say total bond funds are still relatively safer than stocks.

personally, I invest mainly in stocks, with some very-long-term treasuries for my bond allocation, since they offer better protection than short or intermediate treasuries in most* downturn scenarios
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Re: Switching half my portfolio to treasuries?

Post by bikechuck »

UpperNwGuy wrote: Wed Jul 28, 2021 8:11 pm
zetsui wrote: Wed Jul 28, 2021 5:21 am Bonds in particular are tricky for me. If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?
I don't think you understand bonds very well. If you hold them for longer than their duration, you'll be fine.
That is a good strategy if you are in the accumulation phase but it does not work very well at all if you are in the deaccumulation phase without a pension especially if equities are declining.

So much of this varies by individual circumstances and what is great advice for some does not work very well for others.
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Re: Switching half my portfolio to treasuries?

Post by Nowizard »

Nsiprius: From 2000 forward until April 29, 2021: Annual average percentage returns for bonds
S&P: 5.4
Long-term treasuries (10 year duration): 8.3
Long-term corporate: 7.7
Junk: 6.5
Bloomberg/Barclays Index: 5.2

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Re: Switching half my portfolio to treasuries?

Post by YRT70 »

nisiprius wrote: Wed Jul 28, 2021 8:08 pm
Nowizard wrote: Wed Jul 28, 2021 9:32 am ...Bonds have produced equity-like returns in the fairly recent past...
When? Not any time that I can remember within my investing career. What am I forgetting? Unless you just mean that there have been times when equities were making nothing at all, e.g. 2000-2009, so then, yes, during that particular period bonds were producing "equity-like" returns.
Perhaps he meant something like 2000-2020 long term treasury did ~7.6% per year while US market did ~7%.

https://www.portfoliovisualizer.com/bac ... ion2_2=100

Edit; ah we replied at the same time.
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Re: Switching half my portfolio to treasuries?

Post by David Jay »

Nowizard wrote: Thu Jul 29, 2021 7:55 am S&P: 5.4
Warning: Price Index. S&P Total return: >7% from Jan 1 2000 to April 29, 2001 (21 years, 4 months)

In addition, that selected date range starts in the “irrational exuberance” of 2000. From April 29, 2001 the S&P shows higher returns for almost any other period, including the more traditional 10 yr, 15 yr, 20 yr, 25 yr and 30 yr periods.
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Re: Switching half my portfolio to treasuries?

Post by Nowizard »

Really not focusing on the apparent differences where some of us are getting different statistics but on the concept that bonds have been excellent investments in the relatively recent past in addition to providing portfolio protection. The comment is in support of the personal opinion that they will continue to be valuable in current stock/bond ratios and standing pat is a sustainable conclusion when considering whether to switch a portfolio to treasuries. That may be a sustainable choice for some/many, but so is standing pat.

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telemark
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Re: Switching half my portfolio to treasuries?

Post by telemark »

nisiprius wrote: Wed Jul 28, 2021 8:05 pm
zetsui wrote: Wed Jul 28, 2021 5:21 am 1) Lets say I think the market is grossly overvalued.
Let's say you do.

I think lots of things about the market. But I don't act on them. I am convinced that it better not to act on what I "think" than to act on it.
This. If, hypothetically speaking, I thought the market was overvalued I would try to do exactly the same thing as I would if, again hypothetically, I thought the market was undervalued. Because even if hypothetical me is right, the market doesn't care who is right and will cheerfully go on being wrongly valued for as long as it wants.

Real me is 55% in bonds, divided between (mostly) intermediate treasuries and (some) stable value, but I'm a recent retiree and the O.P.'s situation is probably different.
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Re: Switching half my portfolio to treasuries?

Post by Whakamole »

learntoinvest123 wrote: Wed Jul 28, 2021 8:38 pm Markets have decoupled from interest rates. At this point of time treasury yields (10 year) should be in high 2% , but they are in 1.2% range. This is an inflation game at this point of time as Fed has signaled they will not raise Fed funds rates. So if you see high durable inflation, then your scenario will play out well.

You could sell short term treasuries and buy long term ones cheaper or simply buy the stock market as it crashes when Fed raises rates. If inflation does not show up or is low, markets could just keep climbing while you make negative returns on your short term treasuries.
What would happen if the Fed forced interest rates to stay low, but inflation continued to rage? Besides bonds being a sucker's bet.
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Re: Switching half my portfolio to treasuries?

Post by Caduceus »

Instead of using intermediate term treasuries, you can get a reasonable yield on cash-equivalents by selling out of the money cash-secured puts on securities you are happy to own at your premium-adjusted strike price.

That's what I've been doing with the 36% or so amount of cash I have in my portfolio. I've been making, on an annualized basis, about a 3-5% yield on various positions. Were I to be assigned, I would be quite happy as well.
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Re: Switching half my portfolio to treasuries?

Post by james22 »

zetsui wrote: Wed Jul 28, 2021 5:21 amLets say I think the market is grossly overvalued.
You don't think bonds are as well?
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Beensabu
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Re: Switching half my portfolio to treasuries?

Post by Beensabu »

zetsui wrote: Thu Jul 29, 2021 6:59 am
Beensabu wrote: Thu Jul 29, 2021 12:17 am Side note: Rates have been low for so long (10+ years), that there's not too much difference in yield between the old bonds and the new bonds when looking at short-term and shorter end of mid-term treasuries. The return has been flat. This is a reality of sustained low rates. You're better off with a total bond fund that's still holding onto some older longer term higher yielding bonds.
Isn't the corporate bond market dangerous though compared to treasuries?
It has more credit risk. I wouldn't call investment-grade corporate bonds "dangerous", especially short- and intermediate-term ones.
I always thought bogle's asset allocation was baed on treasuries,no?
No. He disliked total bond because he thought it had too many treasuries (and I think it had less back then). It's actually hilarious (and people don't like to talk about it), but there's a quote where he advocated the use of long-term investment grade corporate bonds as a supplement to total bond. LOL. He had his reasons, but I have yet to see anyone on this board take up that particular cause.

Anyway, Vanguard Total Bond Index Fund is about 44% treasuries and 21% GNMAs. The corporate bonds included are all investment-grade.

Short-term treasuries only make sense for funds that are ear-marked for an upcoming use/spend. Or if you are blessed with supernatural prescience and know for absolute sure that we're about to spend a whole entire decade climbing into double digit inflation. Because without that prescience, you're just as likely to end up with a fat lot of exactly the same amount of nominal dollars as you started with in that allocation.
"The only thing that makes life possible is permanent, intolerable uncertainty; not knowing what comes next." ~Ursula LeGuin
hudson
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Re: Switching half my portfolio to treasuries?

Post by hudson »

zetsui wrote: Wed Jul 28, 2021 5:21 am 1) Lets say I think the market is grossly overvalued. I'm around 25% short term treasuries right now. I want to stay in the market. Bonds in particular are tricky for me. If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?

2) So how should one allocate treasuries or sell them? Its not like the Fed gurantees there wont be a downturn before their interest raise rise, so should i allocate now and then immedaitely sell my existing treasuries for higher rate treasuries (or I guess the indeces resprsenting them) on a hike announcment?

3)Lump sum, DCA, does it matter more with bond, doesn't seem to matter with equities?
zetsui,
Treasuries are a good choice. When some of my fixed income products mature, I may go to TIPS...duration matched.
I think that it's a good idea to duration match with fixed income.
I disregard all future interest rate predictions when I buy.
I don't DCA, I just go for the lump sum especially if the interest rates are good.
I hold fixed income products until maturity.
Last edited by hudson on Fri Jul 30, 2021 5:08 am, edited 1 time in total.
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Lee_WSP
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Re: Switching half my portfolio to treasuries?

Post by Lee_WSP »

zetsui wrote: Wed Jul 28, 2021 5:21 am 1) Lets say I think the market is grossly overvalued.
You would need to also have an equally strong conviction that bonds are grossly under valued, otherwise you're just moving from one grossly overvalued asset into another grossly overvalued asset for a net wash. IMO.

I do not disagree with your opinion, but bonds are not cheap in comparison. Nevertheless, it would still take a very large valuation mismatch for me to even think about thinking about making any wholesale changes.

Because you do have to be correct or nearly correct twice and with good timing.
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grabiner
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Re: Switching half my portfolio to treasuries?

Post by grabiner »

zetsui wrote: Wed Jul 28, 2021 5:21 am Bonds in particular are tricky for me. If I want to go 50 or 60% intermediate treasuries (3-5 years, what my employee offers) wouldn't rising interest rates from the Fed automatically devalue my portfolio, when their hinterest rate hike occurs? My old bonds worth less as they are not as high a rate?
No, because the rate that the Fed targets is the short-term rate, not the intermediate-term rate. Bond traders trade five-year bonds based on their expectations of interest rates over the next five years. If the Fed targets an increase in the federal funds rate based on economic conditions now, that doesn't have much effect on the expectations over five years.
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