FWIW, the real return of TBM (VBMFX) since 2012 was -1.06%.Corvidae wrote: ↑Wed Jul 20, 2022 1:22 pmRight. It's silly to say we knew this was going to happen. There has been someone saying this was going to happen for the past 10 years.Mother Biggles wrote: ↑Wed Jul 20, 2022 12:58 pm
Regardless, for me at least, it's still selection bias. I remember the times my hunches proved correct and forget the many more times that was not the case.
More "Conservative Asset Allocation"--yet bond funds down nearly as much?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
I'm still a moron when it comes to fixed income. This has been quite a learning opportunity (and thankfully not too painful of one as I'm still working and have around a 15% bond allocation, though will increase that briskly as I'm much closer to FI due to a windfall). I'll retain my current TBM holding because hopefully it will somewhat recover in the future due to the higher rates. All of my future bond purchases will be individual treasuries, with the intent of laddering maturities to roughly approximate my spending needs, with cash holdings to round the edges.
While my plan certainly doesn't entirely eliminate risk, it helps manage it and leaves me with more control. I have no desire to take (significant; obviously the US could theoretically default) credit risk on the fixed income side. I want to be able to choose to use maturing bonds to meet my spending needs vs. selling a fund at a significant loss. Buying individual bonds does add a little bit of work, but I don't mind, and it decreases cost slightly relative to using a fund.
I respect that everyone has different needs and priorities, but giving blanket advice like TBM is the way to go is incomplete at best. Even if you wanted to use funds and keep it very simple there's a possible benefit to using something like a short term treasury fund (e,g. VSBSX, which is down only 3.3% so far this year) for at least a portion of the bond allocation.
While my plan certainly doesn't entirely eliminate risk, it helps manage it and leaves me with more control. I have no desire to take (significant; obviously the US could theoretically default) credit risk on the fixed income side. I want to be able to choose to use maturing bonds to meet my spending needs vs. selling a fund at a significant loss. Buying individual bonds does add a little bit of work, but I don't mind, and it decreases cost slightly relative to using a fund.
I respect that everyone has different needs and priorities, but giving blanket advice like TBM is the way to go is incomplete at best. Even if you wanted to use funds and keep it very simple there's a possible benefit to using something like a short term treasury fund (e,g. VSBSX, which is down only 3.3% so far this year) for at least a portion of the bond allocation.
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Sure, but if I thought rates were going to go up "any day now" for the past 10 years, I'm probably in short-term CDs, or a short-term bond fund. I think those fared even worse. Obviously in hindsight we could find something that performed better. Trying to predict future interest rates over the long term is a loser's game, IMO. One can probably get it approximately right a few times, but more often one will get it wrong. Incidentally, and apropos of nothing, I believe VIPSX (intermediate TIPS) just pulled ahead of total bond from 2012 to present (both negative).willthrill81 wrote: ↑Wed Jul 20, 2022 1:53 pmFWIW, the real return of TBM (VBMFX) since 2012 was -1.06%.Corvidae wrote: ↑Wed Jul 20, 2022 1:22 pmRight. It's silly to say we knew this was going to happen. There has been someone saying this was going to happen for the past 10 years.Mother Biggles wrote: ↑Wed Jul 20, 2022 12:58 pm
Regardless, for me at least, it's still selection bias. I remember the times my hunches proved correct and forget the many more times that was not the case.
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
I just want to clarify that I am not suggesting that bonds have no value. My main point was simply that when one reads the boglehead forum, it is quite common place to respond to concerns with "adjust your asset allocation". I am wondering if that is a bit over simplistic, particularly when combined with the a 3 fund portfolio strategy. I can see less knowledgeable members being surprised.Kenkat wrote: ↑Wed Jul 20, 2022 1:18 pm One thing I will mention is that this is the worst year I can remember for bonds going back to the late 80s when I started investing. On the other hand, I can remember multiple years where stocks have done much much worse than they have this year. On two different occasions dropping by 50% or so. So yes, it’s been a bad year for both stocks and bonds but there’s likely a lower downside to bonds than stocks. So from that perspective, bonds do provide value.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
If it IS simplistic, do you have an opinion on how that general advice it could be amended?coachd50 wrote: ↑Wed Jul 20, 2022 2:15 pmI just want to clarify that I am not suggesting that bonds have no value. My main point was simply that when one reads the boglehead forum, it is quite common place to respond to concerns with "adjust your asset allocation". I am wondering if that is a bit over simplistic, particularly when combined with the a 3 fund portfolio strategy. I can see less knowledgeable members being surprised.Kenkat wrote: ↑Wed Jul 20, 2022 1:18 pm One thing I will mention is that this is the worst year I can remember for bonds going back to the late 80s when I started investing. On the other hand, I can remember multiple years where stocks have done much much worse than they have this year. On two different occasions dropping by 50% or so. So yes, it’s been a bad year for both stocks and bonds but there’s likely a lower downside to bonds than stocks. So from that perspective, bonds do provide value.
For instance, should we say "fixed income" instead of bonds to leave the question of WHICH fixed income to choose, based on their properties, as a follow-up exercise?
Or should we try to elaborate by saying "adjust your asset allocation by considering bond funds that, though they don't guarantee against losses, SHOULD reduce the size of market swings (volatility)."
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Generally investments fall into the following categories:coachd50 wrote: ↑Wed Jul 20, 2022 2:15 pm My main point was simply that when one reads the boglehead forum, it is quite common place to respond to concerns with "adjust your asset allocation". I am wondering if that is a bit over simplistic, particularly when combined with the a 3 fund portfolio strategy. I can see less knowledgeable members being surprised.
- Stocks
- Marketable bonds or brokered CDs
- Cash equivalents and non-marketable bonds or CDs, which includes savings bonds
- Alternative investments, such as real estate, real assets, etc.
I would tend to categorize John Bogle's books as primarily concentrating on the first two areas, which is mainly what Vanguard offers for investment. While I personally have never had much of a reason to agree with John Bogle's take on marketable bonds, I basically consider it part of the territory. There is some discussion here around the later two areas, yet I'm typically not surprised that the primary focus falls on the first two areas.
I think it always makes sense to understand what you're buying, what risks are involved, and how different scenarios might play out. In that realm, it probably makes sense to understand that jumping ship in the middle of a price decline may or may not be advantageous, depending on intent and unknown future events. For example the Fed never ended up following through on rate suggestions from 2018, and total bond went on a rather nice two year run. The upside for current marketable bond holders is probably if a similar event was to happen in the future, where current expectations don't actually play out. Of course the recent total bond price decline has been fairly short in relation to duration of the fund, and John Bogle would likely encourage staying the course.
Last edited by alluringreality on Wed Jul 20, 2022 3:00 pm, edited 2 times in total.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Perhaps some combination? I don't know. I just know that when when reading threads, I constantly see "Adjust your asset allocation" as the strategy suggested to those concerned about risk/losing money, yet clearly that isn't "safe". So while the simplicity is definitely a plus- are there some drawbacks?Kinkajou82 wrote: ↑Wed Jul 20, 2022 2:29 pmIf it IS simplistic, do you have an opinion on how that general advice it could be amended?coachd50 wrote: ↑Wed Jul 20, 2022 2:15 pmI just want to clarify that I am not suggesting that bonds have no value. My main point was simply that when one reads the boglehead forum, it is quite common place to respond to concerns with "adjust your asset allocation". I am wondering if that is a bit over simplistic, particularly when combined with the a 3 fund portfolio strategy. I can see less knowledgeable members being surprised.Kenkat wrote: ↑Wed Jul 20, 2022 1:18 pm One thing I will mention is that this is the worst year I can remember for bonds going back to the late 80s when I started investing. On the other hand, I can remember multiple years where stocks have done much much worse than they have this year. On two different occasions dropping by 50% or so. So yes, it’s been a bad year for both stocks and bonds but there’s likely a lower downside to bonds than stocks. So from that perspective, bonds do provide value.
For instance, should we say "fixed income" instead of bonds to leave the question of WHICH fixed income to choose, based on their properties, as a follow-up exercise?
Or should we try to elaborate by saying "adjust your asset allocation by considering bond funds that, though they don't guarantee against losses, SHOULD reduce the size of market swings (volatility)."
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Nothing's completely "safe" so I wouldn't exactly call "adjust your asset allocation" bad advice, just a simple first step. Heck, not even cash is 100% safe. Not even I Bonds.coachd50 wrote: ↑Wed Jul 20, 2022 2:45 pm I just know that when when reading threads, I constantly see "Adjust your asset allocation" as the strategy suggested to those concerned about risk/losing money, yet clearly that isn't "safe". So while the simplicity is definitely a plus- are there some drawbacks?
For the returns that we want on our investments, big or small, there is always some trade off. That's almost a given, so maybe that also needs to be repeated often: no guarantees, investments can and do go down sometimes/more often than you think.
I am of the opinion that if someone reads "adjust your asset allocation" advice and chooses to blindly do that without learning anything else at that point, then THEY have failed in responsibility more than the advice itself. BUT they're still more likely better off than before in general (some exceptions).
Last edited by Kinkajou82 on Wed Jul 20, 2022 2:54 pm, edited 1 time in total.
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Yes I would agree with you. I am not a three funder myself.coachd50 wrote: ↑Wed Jul 20, 2022 2:15 pmI just want to clarify that I am not suggesting that bonds have no value. My main point was simply that when one reads the boglehead forum, it is quite common place to respond to concerns with "adjust your asset allocation". I am wondering if that is a bit over simplistic, particularly when combined with the a 3 fund portfolio strategy. I can see less knowledgeable members being surprised.Kenkat wrote: ↑Wed Jul 20, 2022 1:18 pm One thing I will mention is that this is the worst year I can remember for bonds going back to the late 80s when I started investing. On the other hand, I can remember multiple years where stocks have done much much worse than they have this year. On two different occasions dropping by 50% or so. So yes, it’s been a bad year for both stocks and bonds but there’s likely a lower downside to bonds than stocks. So from that perspective, bonds do provide value.
I will add this - some years will be down years no matter what you do and there’s nothing you can really do about that except ride it out and maybe minimize it a bit through diversification beyond the basics.
Last edited by Kenkat on Wed Jul 20, 2022 3:15 pm, edited 1 time in total.
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Right any selection in hindsight is meaningless, though I don't think it was beyond comprehension to believe the risk to the stock of market of higher rates had gone up because it had become more dependent on low rates. So you might have wanted less duration for risk reasons, not because you believed you could predict rates. Also there was a very good period for relative CD yields in there, my current CD ladder was bought at average 1.38% over same maturity treasuries, much less favorable now. Simplicity has its benefits surely, but you don't actually have to be in ~7 yr duration 'total bond' non-inflation adjusted where you've also written interest rate options (on corporate bond calls and MBS prepayment) plus some credit spread risk. You're allowed to buy direct CD's with put via Early Withdrawal Penalty if rates really skyrocket, and TIPS too. Not that it would have made a huge difference in a relatively moderate set back like the recent one.Corvidae wrote: ↑Wed Jul 20, 2022 2:12 pmSure, but if I thought rates were going to go up "any day now" for the past 10 years, I'm probably in short-term CDs, or a short-term bond fund. I think those fared even worse. Obviously in hindsight we could find something that performed better. Trying to predict future interest rates over the long term is a loser's game, IMO. One can probably get it approximately right a few times, but more often one will get it wrong. Incidentally, and apropos of nothing, I believe VIPSX (intermediate TIPS) just pulled ahead of total bond from 2012 to present (both negative).willthrill81 wrote: ↑Wed Jul 20, 2022 1:53 pmFWIW, the real return of TBM (VBMFX) since 2012 was -1.06%.Corvidae wrote: ↑Wed Jul 20, 2022 1:22 pmRight. It's silly to say we knew this was going to happen. There has been someone saying this was going to happen for the past 10 years.Mother Biggles wrote: ↑Wed Jul 20, 2022 12:58 pm
Regardless, for me at least, it's still selection bias. I remember the times my hunches proved correct and forget the many more times that was not the case.
In the big picture interest rates and stock prices weren't strongly correlated over the long term past. And the times when rates go up stock go down include a pretty conventional scenario we've repeated recently: inflation exceeds expectations, expectation of tighter monetary policy aka higher real rates in response reduces the PV of the future real profit stream of stocks plus might imply lower future real profit. Some weird economic and market things have happened recently but 'total bond' and stocks both going down significantly isn't weird. Although as was noted the whole picture is worse calculating in real terms, and it's strange to look at returns damaged by inflation in nominal terms, factoring out the inflation. SP500TR is -22% from peak (just before end of 2021) in real terms, was -27% at bottom (so far), VTBLX around -17% from same date to now (as noted above total bond real return worse looking back into 2021 when stock market was still going up).
Also you have to decide if the reason you have 'bonds' (or whatever 'safe' things) is to 'ride out turbulence' in some self-pandering psychological sense, or if it's in case the stock market face plants and can't get up for years or decades. I have significant allocation to 'safe' for the latter reason. I'm unhappy with recent investment returns, but this kind of stock market drop isn't why I have safe investments.
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Kinkajou82 wrote: ↑Wed Jul 20, 2022 2:29 pmIf it IS simplistic, do you have an opinion on how that general advice it could be amended?coachd50 wrote: ↑Wed Jul 20, 2022 2:15 pmI just want to clarify that I am not suggesting that bonds have no value. My main point was simply that when one reads the boglehead forum, it is quite common place to respond to concerns with "adjust your asset allocation". I am wondering if that is a bit over simplistic, particularly when combined with the a 3 fund portfolio strategy. I can see less knowledgeable members being surprised.Kenkat wrote: ↑Wed Jul 20, 2022 1:18 pm One thing I will mention is that this is the worst year I can remember for bonds going back to the late 80s when I started investing. On the other hand, I can remember multiple years where stocks have done much much worse than they have this year. On two different occasions dropping by 50% or so. So yes, it’s been a bad year for both stocks and bonds but there’s likely a lower downside to bonds than stocks. So from that perspective, bonds do provide value.
For instance, should we say "fixed income" instead of bonds to leave the question of WHICH fixed income to choose, based on their properties, as a follow-up exercise?
Or should we try to elaborate by saying "adjust your asset allocation by considering bond funds that, though they don't guarantee against losses, SHOULD reduce the size of market swings (volatility)."
I’m not a very sophisticate investor but I’ve always found the bolded question persuasive. A combination of Total Bond Fund, ST Treasury index, I-Bonds and CDs (when they’re paying decent interest) has always been attractive to me on the fixed side.I’m getting decent (nominal) returns from some CDs and I-Bonds I bought during a different period, so I haven’t fretted as much about TBF’s recent performance. One nice consequence is that I can take this year’s (and the next couple of years) RMDs from a maturing IRA CD that has not lost (nominal) value as TBF has.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
It may have meant that at the time, the market didn't think inflation would last long term. This week, it seems they were (are) right, for the time being. The ten-year treasury is at 2.842%. The market doesn't forecast the future, but it does discount all available information into pricing.Marseille07 wrote: ↑Wed Jul 20, 2022 10:58 amIt's not so obvious. CPI printing 9.1% yet the Ten is only 3%; which means people continue to buy loads of bonds despite the low coupon rate.Mother Biggles wrote: ↑Wed Jul 20, 2022 10:52 am To be honest I feel like a dummy about it myself. I mean the Fed advertised they were going to be raising their rates significantly. You would think it was obvious that bond prices would go down. I know market timing is largely a losing bet. But in retrospect I mean how could we have not known bonds were going to go down? It is so obvious!
My only consolation is that there were probably many many other times in the past where it was so obvious the market was going to do something rather and that didn’t happen. Naturally I forget all these other events that seemed so obvious but that did not happen. So my consolation is I am pretty much on auto pilot and largely ignore everything. Just keep plugging away my regular contribution every payday and gradually changing allocation as I get closer to retirement based on how close I think I am to retirement. Still this one irks me too. Seems so obvious.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
I think you're giving them too much credit. 2Y at 3.25% and 10Y at 2.842% is nonsensical, and don't forget that the FF rate will hit 2.75% in a month, possibly 3%.Charles Joseph wrote: ↑Sat Aug 13, 2022 8:19 am It may have meant that at the time, the market didn't think inflation would last long term. This week, it seems they were (are) right, for the time being. The ten-year treasury is at 2.842%. The market doesn't forecast the future, but it does discount all available information into pricing.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
I recently watched an excellent interview with Mary Ellen Stanek. And she commented that the total bond market is very good at accurately pricing in all publicly available information.Marseille07 wrote: ↑Sat Aug 13, 2022 8:57 amI think you're giving them too much credit. 2Y at 3.25% and 10Y at 2.842% is nonsensical, and don't forget that the FF rate will hit 2.75% in a month, possibly 3%.Charles Joseph wrote: ↑Sat Aug 13, 2022 8:19 am It may have meant that at the time, the market didn't think inflation would last long term. This week, it seems they were (are) right, for the time being. The ten-year treasury is at 2.842%. The market doesn't forecast the future, but it does discount all available information into pricing.
Anyway, the current interest rates as you described above seem to indicate that the market expects inflation to continue to be troublesome in the short term but to not last in the long term, although to not decrease to pre-pandemic levels.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
In a bond fund, falling share prices are good; it means you're getting more interest. If you want to make sure your account balance never drops by a penny just put the money in the bank.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
The Ten is actually wrong quite often. For example, it was only 1.7% as of 1/1/2022 when inflation was already printing 7% and the Fed said they were raising the FF rate to 2% by the end of 2022.Charles Joseph wrote: ↑Sat Aug 13, 2022 9:04 am I recently watched an excellent interview with Mary Ellen Stanek. And she commented that the total bond market is very good at accurately pricing in all publicly available information.
Anyway, the current interest rates as you described above seem to indicate that the market expects inflation to continue to be troublesome in the short term but to not last in the long term, although to not decrease to pre-pandemic levels.
While it was difficult to see 2.25% by August, they have little excuse only demanding 1.7% then. I'm sure we'd be saying the same thing about today's 2.84% rate by the end of 2022.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
The market wasn't wrong. It didn't see in January (and still doesn't see today), inflation being persistent ten years from now.Marseille07 wrote: ↑Sat Aug 13, 2022 9:40 amThe Ten is actually wrong quite often. For example, it was only 1.7% as of 1/1/2022 when inflation was already printing 7% and the Fed said they were raising the FF rate to 2% by the end of 2022.Charles Joseph wrote: ↑Sat Aug 13, 2022 9:04 am I recently watched an excellent interview with Mary Ellen Stanek. And she commented that the total bond market is very good at accurately pricing in all publicly available information.
Anyway, the current interest rates as you described above seem to indicate that the market expects inflation to continue to be troublesome in the short term but to not last in the long term, although to not decrease to pre-pandemic levels.
While it was difficult to see 2.25% by August, they have little excuse only demanding 1.7% then. I'm sure we'd be saying the same thing about today's 2.84% rate by the end of 2022.
Do you really think you have more knowledge than millions of bond traders and analysts across the globe to state what the ten-year treasury should have been in January 2022; that they had "little excuse only demanding 1.7% then"? What set of data points did you use to come to the conclusion that the entire bond market was wrong in January 2022 about what a ten-year treasury note should have been priced at then?
How do you come to the conclusion that you are right and the entire bond market was wrong?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
The Ten doesn't move on inflation ten years from now. Obviously no know knows the rate of inflation then.Charles Joseph wrote: ↑Sat Aug 13, 2022 12:06 pm The market wasn't wrong. It didn't see in January (and still doesn't see today), inflation being persistent ten years from now.
Do you really think you have more knowledge than millions of bond traders and analysts across the globe to state what the ten-year treasury should have been in January 2022; that they had "little excuse only demanding 1.7% then"? What set of data points did you use to come to the conclusion that the entire bond market was wrong in January 2022 about what a ten-year treasury note should have been priced at then?
How do you come to the conclusion that you are right and the entire bond market was wrong?
I already presented the datapoints I look at. If you are still asking them, we're clearly talking past each other.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
You misunderstand how the bond market works.Marseille07 wrote: ↑Sat Aug 13, 2022 12:32 pmThe Ten doesn't move on inflation ten years from now. Obviously no know knows the rate of inflation then.Charles Joseph wrote: ↑Sat Aug 13, 2022 12:06 pm The market wasn't wrong. It didn't see in January (and still doesn't see today), inflation being persistent ten years from now.
Do you really think you have more knowledge than millions of bond traders and analysts across the globe to state what the ten-year treasury should have been in January 2022; that they had "little excuse only demanding 1.7% then"? What set of data points did you use to come to the conclusion that the entire bond market was wrong in January 2022 about what a ten-year treasury note should have been priced at then?
How do you come to the conclusion that you are right and the entire bond market was wrong?
I already presented the datapoints I look at. If you are still asking them, we're clearly talking past each other.
The market takes in all publicly available information, then synthesizes that data as it trades and sets interest rates, so the ten-year treasury rate includes, among many other factors, what the market roughly thinks inflation will be ten years from now. Interest rates and inflation expectations are correlated with one another. And the market, right now, based on all publicly available data, does not think inflation will be exorbitantly high ten years from now. It is guessing that it will be higher than pre-pandemic levels, but not as high as the present.
Do you understand now?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
We have different POVs. Let's agree to disagree.Charles Joseph wrote: ↑Sat Aug 13, 2022 12:45 pm You misunderstand how the bond market works.
The market takes in all publicly available information, then synthesizes that data as it trades and sets interest rates, so the ten-year treasury rate includes, among many other factors, what the market roughly thinks inflation will be ten years from now. Interest rates and inflation expectations are correlated with one another. And the market, right now, based on all publicly available data, does not think inflation will be exorbitantly high ten years from now. It is guessing that it will be higher than pre-pandemic levels, but not as high as the present.
Do you understand now?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Well what I stated wasn't a point of view; it was a set of facts. But okay.Marseille07 wrote: ↑Sat Aug 13, 2022 12:56 pmWe have different POVs. Let's agree to disagree.Charles Joseph wrote: ↑Sat Aug 13, 2022 12:45 pm You misunderstand how the bond market works.
The market takes in all publicly available information, then synthesizes that data as it trades and sets interest rates, so the ten-year treasury rate includes, among many other factors, what the market roughly thinks inflation will be ten years from now. Interest rates and inflation expectations are correlated with one another. And the market, right now, based on all publicly available data, does not think inflation will be exorbitantly high ten years from now. It is guessing that it will be higher than pre-pandemic levels, but not as high as the present.
Do you understand now?
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
The risk on bonds is very different from the risk of equities. No doubt that bonds have safer greatly this year, but unless you need to cash out your investment grade bond index fund, I do not understand the concern. Please read the following article from Vanguard.
https://advisors.vanguard.com/insights/ ... andonbonds
Just quoting the bottom line:
*Bond prices may not matter as much as investors think they do*.,..,
Medium- to long-term investors should care more about *bond total returns instead of the negative short-term impact on bond prices*. In fact the long-term performance of bond investments has come mostly from income return, not price return.
https://advisors.vanguard.com/insights/ ... andonbonds
Just quoting the bottom line:
*Bond prices may not matter as much as investors think they do*.,..,
Medium- to long-term investors should care more about *bond total returns instead of the negative short-term impact on bond prices*. In fact the long-term performance of bond investments has come mostly from income return, not price return.
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Just so. People panic when bond NAVs go down by noticeable amounts because that is equated to lack of safety and bonds are "for" safety. In a small number of specific situations loss of bond NAV would be a problem. For most investors most of the time it is not. For most investors most of the time negative returns on stocks in some interval of time are not a problem either. But there are degrees and exceptions. For sure if NAV changes on either stocks or bonds really are a problem for someone, then that person should not be invested in things like that.Always passive wrote: ↑Sat Aug 13, 2022 1:16 pm The risk on bonds is very different from the risk of equities. No doubt that bonds have safer greatly this year, but unless you need to cash out your investment grade bond index fund, I do not understand the concern. Please read the following article from Vanguard.
https://advisors.vanguard.com/insights/ ... andonbonds
Just quoting the bottom line:
*Bond prices may not matter as much as investors think they do*.,..,
Medium- to long-term investors should care more about *bond total returns instead of the negative short-term impact on bond prices*. In fact the long-term performance of bond investments has come mostly from income return, not price return.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Since the 1970s we have not had a year like 2022.
For long term investors, assuming the inflation is controlled, they should welcome an increase in rates. I rather have this than staying in zero yield environment.
My entire bond exposure is in TIPs. SCHP has lost over 8% this year, so should I be concerned?
For long term investors, assuming the inflation is controlled, they should welcome an increase in rates. I rather have this than staying in zero yield environment.
My entire bond exposure is in TIPs. SCHP has lost over 8% this year, so should I be concerned?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Always passive wrote: ↑Sat Aug 13, 2022 1:16 pm The risk on bonds is very different from the risk of equities. No doubt that bonds have suffered greatly this year, but unless you need to cash out your investment grade bond index fund, I do not understand the concern. Please read the following article from Vanguard.
https://advisors.vanguard.com/insights/ ... andonbonds
Just quoting the bottom line:
*Bond prices may not matter as much as investors think they do*.,..,
Medium- to long-term investors should care more about *bond total returns instead of the negative short-term impact on bond prices*. In fact the long-term performance of bond investments has come mostly from income return, not price return.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Is this because of:KlangFool wrote: ↑Wed Jul 20, 2022 10:46 amcoachd50,coachd50 wrote: ↑Wed Jul 20, 2022 10:39 amThe majority of advice here on the forum closely resembles "find yourself an AA you are comfortable with, and utilize a 3 fund portfolio of total stock, total bond, total international". (Which according to your footer isn't what you have). As you point out, your 60/40 is down 10%--but wouldn't a 10/90 portfolio be down roughly the same? Yet any comments made to someone expressing concern about their portfolio drop is to "examine their asset allocation, and adjust to match 'their risk tolerance'".
So I suppose my point is to ask if that is over-simplistic. Should someone who was concerned about their portfolio value and the risk of loss in say 2019, 2020, 2021 looked at the things that willthrill81 or MikeG62 or badger42 have mentioned as opposed to just reducing the equity part of their 3 fund portfolio and increasing their BND holding (or whatever).
You missed my key point.
VTSAX is down X%
VBTLX is down Y%
A 60/40 portfolio would not be down 60% of X and 40% of Y. It is not that simple.
VTSAX -18.04%
VBTLX -10.31%
60% of VTSAX and 40% of VBTLX = 10.824% + 4.124% = 14.94%
But, my 60/40 portfolio is actually only down 10.20%
KlangFool
1. Rebalancing
2. Additional contributions
3. Reinvestment of dividends.
4. All of the above?
It's hard to accept the truth when the lies were exactly what you wanted to hear. Investing is simple, but not easy. Buy, hold & rebalance low cost index funds & manage taxable events. Asking Portfolio Questions |
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
4.arcticpineapplecorp. wrote: ↑Sat Aug 13, 2022 1:44 pmIs this because of:KlangFool wrote: ↑Wed Jul 20, 2022 10:46 amcoachd50,coachd50 wrote: ↑Wed Jul 20, 2022 10:39 amThe majority of advice here on the forum closely resembles "find yourself an AA you are comfortable with, and utilize a 3 fund portfolio of total stock, total bond, total international". (Which according to your footer isn't what you have). As you point out, your 60/40 is down 10%--but wouldn't a 10/90 portfolio be down roughly the same? Yet any comments made to someone expressing concern about their portfolio drop is to "examine their asset allocation, and adjust to match 'their risk tolerance'".
So I suppose my point is to ask if that is over-simplistic. Should someone who was concerned about their portfolio value and the risk of loss in say 2019, 2020, 2021 looked at the things that willthrill81 or MikeG62 or badger42 have mentioned as opposed to just reducing the equity part of their 3 fund portfolio and increasing their BND holding (or whatever).
You missed my key point.
VTSAX is down X%
VBTLX is down Y%
A 60/40 portfolio would not be down 60% of X and 40% of Y. It is not that simple.
VTSAX -18.04%
VBTLX -10.31%
60% of VTSAX and 40% of VBTLX = 10.824% + 4.124% = 14.94%
But, my 60/40 portfolio is actually only down 10.20%
KlangFool
1. Rebalancing
2. Additional contributions
3. Reinvestment of dividends.
4. All of the above?
KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Only if you think an increase in real interest rates is going to harm you somehow or if you were for some reason counting on the NAV remaining unchanged and now it changed. SCHP has only done what such a fund would do when real interest rates increase. At the end of 2021 the real yield at five years was -1.61% and today it is 0.30%, an increase of almost 2%. That results in a depression of the NAV of such a fund by about 14%. The higher interest rates, if they persist, will increase the real return of that fund over time. A good length of planning time for a fund with a duration of 7 years would be about 14 years and more. I have owned TIPS funds for some time and hope that my total time line will have been on the order of 30-40 years or more.Always passive wrote: ↑Sat Aug 13, 2022 1:29 pm Since the 1970s we have not had a year like 2022.
For long term investors, assuming the inflation is controlled, they should welcome an increase in rates. I rather have this than staying in zero yield environment.
My entire bond exposure is in TIPs. SCHP has lost over 8% this year, so should I be concerned?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Thank you, I fully agree.dbr wrote: ↑Sat Aug 13, 2022 1:50 pmOnly if you think an increase in real interest rates is going to harm you somehow or if you were for some reason counting on the NAV remaining unchanged and now it changed. SCHP has only done what such a fund would do when real interest rates increase. At the end of 2021 the real yield at five years was -1.61% and today it is 0.30%, an increase of almost 2%. That results in a depression of the NAV of such a fund by about 14%. The higher interest rates, if they persist, will increase the real return of that fund over time. A good length of planning time for a fund with a duration of 7 years would be about 14 years and more. I have owned TIPS funds for some time and hope that my total time line will have been on the order of 30-40 years or more.Always passive wrote: ↑Sat Aug 13, 2022 1:29 pm Since the 1970s we have not had a year like 2022.
For long term investors, assuming the inflation is controlled, they should welcome an increase in rates. I rather have this than staying in zero yield environment.
My entire bond exposure is in TIPs. SCHP has lost over 8% this year, so should I be concerned?
The “should I be concerned” was made sarcastically in response to those that are concerned about this years’ bond volatility and equate it with “risk”
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
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Last edited by mary1492 on Thu Sep 29, 2022 11:05 am, edited 1 time in total.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
The TSP's F Fund's investment objective is to match the performance of the Bloomberg U.S. Aggregate Bond Index https://www.tsp.gov/funds-individual/f-fund/
The TSP's G Fund principal and interest is guaranteed by the U.S. Government. This means that the U.S. Government will always make the required payments. https://www.tsp.gov/funds-individual/g-fund/
How old need a retiree be (i.e., how little remaining "long-run" expected) to be deemed not "absurdly risk-averse" to prefer the G Fund?
The TSP's G Fund principal and interest is guaranteed by the U.S. Government. This means that the U.S. Government will always make the required payments. https://www.tsp.gov/funds-individual/g-fund/
dbr wrote: ↑Wed Jul 20, 2022 8:36 am Yes, people can be naive about the risks in bonds. 10%-12% is less than 15%-20% and there are choices in bonds that have dropped much less than that. 10%-12% is an extreme event for bonds and 15%-20% is on the small side of what can happen to stocks....
It is unfortunate when people don't get the message that bonds do not only zig when stocks zag or that no money can be lost in bonds, but people that think those things have not been listening or they have been listening to people who don't know what they are talking about. Also in that category we need to get rid of garbage such as if you hold for the duration you can't lose money and other similar wrong statements about how bonds respond to interest rate changes.
(emphasis added)vineviz wrote: ↑Fri Apr 10, 2020 8:05 am Most investors are better off using the F fund almost entirely. As the only actual bond fund available in the TSP, it's the best diversification for your stock allocation.
The G fund is effectively a money market fund (i.e. "cash" or a "stable value" fund). Historically it's offered much higher yields than non-TSP money market funds, but unless you're trying to provide an extreme amount of short-term liquidity (or are absurdly risk-averse) the F fund is the better long-run choice.
How old need a retiree be (i.e., how little remaining "long-run" expected) to be deemed not "absurdly risk-averse" to prefer the G Fund?
Retirement is best when you have a lot to live on, and a lot to live for. * None of what I post is investment advice.* |
FIRE'd July 2023
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Looking at shifting bond risk to/from the stock side and comparingwillthrill81 wrote: ↑Wed Jul 20, 2022 9:34 amPart of the problem is that the performance of bonds from 1981-2012 led many to believe that bonds would never drop much in value, despite history being very clear that they certainly could.coachd50 wrote: ↑Wed Jul 20, 2022 7:53 am In reading many of the threads recently lamenting the stock market drop of about 15%-20% this year, I see many of the responses instructing the poster that they need to "reconsider their asset allocation" and consider something more conservative. This seems to be a pretty standard reply here on the boglehead forum.
Yet bond funds are down 10%-12% as well aren't they? Which seems to beg the question, is just suggesting a more heavily weighted bond allocation overly simplistic?
For those more savvy investors here, while 20/20 hindsight is always nice, does it now seem like since interest rates were so low it should have been obvious that bond funds were likely to drop in value and therefore didn't necessarily constitute "more conservative" investments?
Those who didn't want to see their bond principal drop in value, at least in nominal terms, should have owned short-term bonds rather than bonds of longer maturity. CDs are another choice.
67/33 stock/cash
50/50 stock/10 year treasury
33/67 stock/long term treasury
and as a combined portfolio the yearly worst cases were worse for 67/33 stock/cash PV
The best Monte-Carlo was also when holding LTT's (percentage survival when driving a 4.5% SWR).
PV
PV
PV
Dialing up stock/dialing down bond duration can negate the portfolio drawdown that the additional price stability of shorter dated bonds provides. Dialing down bond duration without revising the weighting to stocks in compensation, is a predictive bet that might be considered as a partial short stock play (some stocks can do well under rising interest rates, banks might make more profits, as might firms that can increase prices in reflection of inflation).
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Well, I'm not retired (42) but I prefer the G fund to the F fund. It may not be the ideal choice, but it is good enough.AlwaysLearningMore wrote: ↑Sat Aug 13, 2022 5:19 pm The TSP's F Fund's investment objective is to match the performance of the Bloomberg U.S. Aggregate Bond Index https://www.tsp.gov/funds-individual/f-fund/
The TSP's G Fund principal and interest is guaranteed by the U.S. Government. This means that the U.S. Government will always make the required payments. https://www.tsp.gov/funds-individual/g-fund/
dbr wrote: ↑Wed Jul 20, 2022 8:36 am Yes, people can be naive about the risks in bonds. 10%-12% is less than 15%-20% and there are choices in bonds that have dropped much less than that. 10%-12% is an extreme event for bonds and 15%-20% is on the small side of what can happen to stocks....
It is unfortunate when people don't get the message that bonds do not only zig when stocks zag or that no money can be lost in bonds, but people that think those things have not been listening or they have been listening to people who don't know what they are talking about. Also in that category we need to get rid of garbage such as if you hold for the duration you can't lose money and other similar wrong statements about how bonds respond to interest rate changes.(emphasis added)vineviz wrote: ↑Fri Apr 10, 2020 8:05 am Most investors are better off using the F fund almost entirely. As the only actual bond fund available in the TSP, it's the best diversification for your stock allocation.
The G fund is effectively a money market fund (i.e. "cash" or a "stable value" fund). Historically it's offered much higher yields than non-TSP money market funds, but unless you're trying to provide an extreme amount of short-term liquidity (or are absurdly risk-averse) the F fund is the better long-run choice.
How old need a retiree be (i.e., how little remaining "long-run" expected) to be deemed not "absurdly risk-averse" to prefer the G Fund?
The way I understand it is:
rates decrease - F fund outperforms
rates stay the same - ~tie
rates increase - G fund outperforms.
I also bump up my stock allocation by 5% to offset the lower risk/return nature of the G fund relative to F. Again, this may not be ideal either, but I am satisfied with it and will stick by the choice. You could probably achieve a similar result by blending G&F, which is what I believe the TSP lifecycle funds do.
"Yeah, well, you know, that's just like, uh, your opinion, man." - J. Lebowski
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
This in fact makes perfect sense, and means the market thinks inflation will be higher in two years than in ten years.
"The big money is not in the buying and selling, but in the waiting." - Charles Munger
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
It is a bit more complicated than that. Just Google “yield inversion”, in you will find a detailed answerCharles Joseph wrote: ↑Sun Aug 14, 2022 5:49 pmThis in fact makes perfect sense, and means the market thinks inflation will be higher in two years than in ten years.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
[Unnecessary comment removed by admin LadyGeek] It might not matter a whole lot since bonds eventually recover.Always passive wrote: ↑Sun Aug 14, 2022 9:51 pm It is a bit more complicated than that. Just Google “yield inversion”, in you will find a detailed answer
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
I, for one, am happy to see interest rates go up with the concomitant fall in bond fund values, because I still have 20 more years to save, and I'd prefer the higher distributions going forward.
Besides, what else are you suggesting I do? Sit on cash and try to time the bond market?
Besides, what else are you suggesting I do? Sit on cash and try to time the bond market?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
You got it!!toddthebod wrote: ↑Mon Aug 15, 2022 1:07 am I, for one, am happy to see interest rates go up with the concomitant fall in bond fund values, because I still have 20 more years to save, and I'd prefer the higher distributions going forward.
Besides, what else are you suggesting I do? Sit on cash and try to time the bond market?
Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
Portfolio Visualizer is such a useful and well made resource – but it REALLY really needs the data for major asset classes (and ideally sectors) to go back to at least 1972. On portfolio and optimisation pages. Really needs the gold data filled in on portfolio optimisation and efficient frontiers (they've got the data) and maybe simulated TIPS returns. Any backtest that doesn't include a decent period of the four basic economic environments is going to be profoundly incomplete. (as this thread maybe attests – a lot of investors didn't know how treasuries would perform during rising inflation.)
60:40 and 50:50 are of an era when investors didn't have a great many options. There weren't TIPS (as we know them – 'TIPS' does sound like a plural), it was harder for retail investors to access commodities, infrastructure, etc. And it would've been bond ladders, so you really wouldn't have noticed the effects of rising yields or inflation (so much). A bond ladder would've felt like a safe way to preserve capital and grow it at a steady rate.
I don't think there's anything wrong with that. But I think it's unlikely to be optimal. Choosing not to hold real assets has to be an active bet against a market that's mostly invested in real assets.
60:40 and 50:50 are of an era when investors didn't have a great many options. There weren't TIPS (as we know them – 'TIPS' does sound like a plural), it was harder for retail investors to access commodities, infrastructure, etc. And it would've been bond ladders, so you really wouldn't have noticed the effects of rising yields or inflation (so much). A bond ladder would've felt like a safe way to preserve capital and grow it at a steady rate.
I don't think there's anything wrong with that. But I think it's unlikely to be optimal. Choosing not to hold real assets has to be an active bet against a market that's mostly invested in real assets.
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
If you have 20 more years to save up, stocks and some cash unless you pay bills with bonds.toddthebod wrote: ↑Mon Aug 15, 2022 1:07 am Besides, what else are you suggesting I do? Sit on cash and try to time the bond market?
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Re: More "Conservative Asset Allocation"--yet bond funds down nearly as much?
^This.toddthebod wrote: ↑Mon Aug 15, 2022 1:07 am I, for one, am happy to see interest rates go up with the concomitant fall in bond fund values, because I still have 20 more years to save, and I'd prefer the higher distributions going forward.
Besides, what else are you suggesting I do? Sit on cash and try to time the bond market?
"The big money is not in the buying and selling, but in the waiting." - Charles Munger