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Building a Treasury Bond Ladder

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Re: Building a Treasury Bond Ladder

#101

Post by IkmoIkmo »

ThrustVectoring wrote: post #77
Lavery wrote: post #75

Earlier quoted context omitted.

None of what you're saying is wrong, but remember the context here when using the historical performance of markets to talk about these kinds of hard-and-fast rules. The period for which we have market data also spans: the period with the fastest growth in global population, including population growth in developed markets; the outbreak of extended peace between world powers; and roughly tracks human exploitation of…

If things are bad enough that the 30-year treasury outperforms global stocks at maturity, then the correct hedge is canned food, guns, and ammunition. The most pessimistic long-term outlooks cannot be mitigated by any sort of market mechanism because that level of pessimism implies a breakdown of the market itself.

This is really underappreciated. I'm a big fan of diversification, and it can be very important to lower your risk-appetite if you're relying on your investment income in a short-medium timeframe (e.g. if you're planning on retiring in 5 years, being all-in equity is just silly, or if you're saving for a downpayment on a home in a few years, stock investing isn't the primary instrument to use), but in the long-term (e.g. a 25 year old thinking about early retirement someday) it just doesn't make sense to take too little risk.

And in part it's precisely because of the worst case scenario happens where worldwide stocks don't outperform treasury bonds, you're likely living in a world where your money isn't legal tender anymore anyway, and any stock/bond investment decision you ever made basically irrelevant.

So if decisions regarding the extreme downside risk are irrelevant, you might as well optimize for the upside.

Re: Building a Treasury Bond Ladder

#102

Post by ThrustVectoring »

IkmoIkmo wrote: post #101
ThrustVectoring wrote: post #77

Earlier quoted context omitted.

If things are bad enough that the 30-year treasury outperforms global stocks at maturity, then the correct hedge is canned food, guns, and ammunition. The most pessimistic long-term outlooks cannot be mitigated by any sort of market mechanism because that level of pessimism implies a breakdown of the market itself.

This is really underappreciated. I'm a big fan of diversification, and it can be very important to lower your risk-appetite if you're relying on your investment income in a short-medium timeframe (e.g. if you're planning on retiring in 5 years, being all-in equity is just silly, or if you're saving for a downpayment on a home in a few years, stock investing isn't the primary instrument to use), but in the long-term (…

Do note that there is a maximum amount of aggressiveness, beyond which you basically guarantee that you go broke while making trades with positive expected value. If you flip a coin that wins you twice as much as you lose, and you bet your entire bankroll, you'll eventually lose the coin flip and with it your entire savings.

For broad-market equity indexes, this point is at roughly 140% stocks / -40% cash. So it's not close to being an issue with current market expectations for a 100% equity portfolio, but generally speaking there is a level beyond which you cannot further optimize for upside at the expense of downside.

Re: Building a Treasury Bond Ladder

#103

Post by grenoire »

pjc50 wrote: post #85
rllin wrote: post #41

Responding in general to the meme of "but what is your time worth?" people often underestimate their ability to change their own utility functions. If you're watching 4 hours of TV every night (or reading or w/e other "mental recharge" activity) simply change your utility function to let financial planning "recharge you." The ultimate arb is changing your own utility function. Obviously this may be harder or easier f…

>simply change your utility function ... how?

First you have to take an introduction to neo-classical microecomics class... and then not delve any deeper into economics whatsoever. This will lead you to believe, as OP does, and as such give you the ability to change by the means of your belief!

Re: Building a Treasury Bond Ladder

#105

Post by sushid »

grenoire wrote: post #103
pjc50 wrote: post #85

Earlier quoted context omitted.

>simply change your utility function ... how?

First you have to take an introduction to neo-classical microecomics class... and then not delve any deeper into economics whatsoever . This will lead you to believe, as OP does, and as such give you the ability to change by the means of your belief!

I realize your post is in jest but I can't help but wonder if the parent comment is also a Randian parody or not

Re: Building a Treasury Bond Ladder

#106

Post by valenciarose »

jterenzio wrote: post #63
valenciarose wrote: post #59

This under-represents the risks of bond investment. While it's true that the credit risk of treasuries is incredibly low, interest rate and inflation risk needs to be addressed more seriously than it is in this post. In today's market, it's easy to think of holding a bond until maturity under adverse interest rate movements as "not losing money". This is a false model. For example, a ten year treasury purchased at is…

Thanks for the comment. I was trying to make clear this is a short-term strategy in a rising rate environment where you eventually want the principal back and don't want to take much risk. In accounts with longer term goals like retirement accounts you'd probably mix equities and more diversified bond funds. Is there a way you think the strategy and when it's appropriate could be made more clear?

It's a good article and the strategy is appropriate as part of a more diverse portfolio. My point wasn't that the article was bad, but that holding till maturity only gives the illusion of bypassing interest rate risk.

"The only real risk to principal is being locked in to a rate that's lower than inflation for an extended period."

Re: Building a Treasury Bond Ladder

#107

Post by undersuit »

mCOLlSVIxp6c wrote: post #65
loeg wrote: post #38

Earlier quoted context omitted.

Although you'll have to interact with TreasuryDirect, one of the worst, 90's era security decision websites. Their idea of secure password entry is (mandatory) clicking buttons on an on-screen keyboard.

This Bookmarklet makes the field editable: javascript:$(":password").removeAttr("readonly") I agree TreasuryDirect is not the best website. No trading on the secondary market either. But it has some nice benefits. It has zero fees lower minimums than other institutions. You can also purchase savings bonds and transfer in existing paper bonds. Savings bonds are just as secure as US treasury bonds. It's not popular to…

Thank you for the Bookmarklet, I wonder if I can build it into my KeePass entry process.

Re: Building a Treasury Bond Ladder

#108

Post by DjMojoRisin »

DjMojoRisin wrote: post #42

This is a fantastic post, thanks for sharing jterenzio. I'm working on building something that does something similar, and would love feedback from folks. If you are interested in chatting, please drop me a note at km at shivala dot com.

whoops the email is - km at shivala dot in

Re: Building a Treasury Bond Ladder

#109

Post by grenoire »

sushid wrote: post #105
grenoire wrote: post #103

Earlier quoted context omitted.

First you have to take an introduction to neo-classical microecomics class... and then not delve any deeper into economics whatsoever . This will lead you to believe, as OP does, and as such give you the ability to change by the means of your belief!

I realize your post is in jest but I can't help but wonder if the parent comment is also a Randian parody or not

Jesting jesters trolling trolls jesting je...
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