SantaClaraSurfer wrote: ↑Tue May 24, 2022 8:47 am
I started purchasing SCHQ (LTT ETF) in Jan 2021 for ballast in our taxable account instead of SCHZ (US Total Bond, our previous ballast bond fund choice which I sold off completely in March of 2020.)
A comparison of SCHQ versus SCHZ since Jan. 2021 shows SCHZ down 13.55% and SCHQ down 25.37%.
At this point, even with the recent equity declines, I am guessing the standard advice would be either DO NOTHING, ie. don't sell either equities or bonds to rebalance, since both equities and bonds have had a steep decline, or, if anything, perhaps BUY MORE BONDS with new money if, like me, you've been purchasing SCHQ.
However, it would be great to see a less theoretical discussion here, and a more pragmatic discussion of how an investor in my situation should approach this real life situation. Especially, as behaviorally, we are asking the LTT to serve as ballast AND a long term investment.
In my case, as mid-career accumulators, and new to taxable accounts, my horizon is long, so I purchased LTT via SCHQ.
Stocks dropped, but LTT, so far, since Jan 1, 2021, has dropped even more.
Is the answer as simple as buy more LTT? Ie. Stay the course and buy even more LTT when they drop?
Real life behavioral reality: I sold 100 shares of SCHQ (and took the loss) in favor of rebalancing to equities when my US Total Market shares were down almost 20% for the year and SCHQ had an upturn one day.
Why did I do this?
Basically,
because the bonds are for ballast and I'd made a grid instructing me to sell bonds if equities hit a certain mark at the beginning of the year. (SCHB < $47.50 / share) It's a VERY difficult behavioral scenario to have BOTH bonds and equities down approaching 20%, and, given that I see these bonds as mostly for ballast, when SCHB hit $45.11 per share, I followed my plan to sell bonds and buy equities after SCHB dropped well below my given share price.
The fact is, I did not countenance that SCHQ would drop the way it has. My planning simply didn't include this scenario where I probably should not have sold my ballast bonds. I need to include guidance in my IPS to cover this.
I think clarifying what an accumulator like me who is purchasing LTT should do in this scenario (where BOTH LTT and equities are down) would be helpful guidance.
Call me a market timer, call me a knee jerk, call me a whatever you want. I am a firm believer in LTT as a
RISK aversion to the 100% equities group in terms of having assets that are not just cash but bonds as well. Last year, I sold off all of my LTT (at a premium since they rose based on when I bought them previously) and exited bonds all together. You'll noticed, on days like today, LTT's are going up when the stocks are going down-- As I'm sure Vineviz would state, this is working as intended.
If I had to equate LTT's I would say they are akin to SCV in terms of volatility due to the nature of their time horizon. Going 15, 20 or 25+ years into the future for "bond" coupons is a fools errand to try and predict however, given the fluctuation in pricing, interest rates and market rationale, there isn't a good "silver bullet" answer other than "Risk" in my opinion.
Those who are 100% equities or even those in the 80/20, 70/30 camp with LTT's feeling the pain of LTT's due to interest rate hikes--- All I would say, anecdotally is that this is normal. Even in this thread, having the first 20% in LTT's based on time horizon makes the most sense based on the risk profile of the investor.
I think the "Bonds as Ballast" statement is a false narrative. The statement reads:
"If I own Bonds, my retirement account won't go down"
Now, I'm not saying you're saying that, but I think that is what
MOST people believe and they can't understand WTH their portfolios would go down if in fact, they owned bonds. Whereas if you have the statement:
"Bonds as tailwind"
Bonds are meant to keep pushing you forward both seen and unseen independent of total market conditions of people's opinions on if "Bonds as a Ballast" actually means anything. Getting back to risk, the point here is that LTT help, not hinder total risk exposure of returns independent of interest rates, what Goldman Sachs or JP Morgan is doing with their hedge funds because you're relying on the time horizon to be that tailwind.
Selling LTT's at a loss (imo) is not worth the time or effort and if you are realizing you have a greater appetite for risk (meaning less LTT's as your overall bond %) then simply DCA into your IPS strategy to the assets that are
NOT bonds. At the end of the day, the risk tolerance of the investor is what should guide them on if they do or do not want bonds in their portfolio--- LTT or otherwise. As of this writing, SCHQ is up over 2%
Promise is one thing. Fulfilling that promise is quite another. - Sir Alex Ferguson |
20% IVV / 40% IBIT / 20% IXUS / 20% VGLT + chill