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Richard Shaw  

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  • Bond Fund Choices For Retiree Portfolios [View article]
    Agree
    Feb 22, 2015. 04:02 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    NO. While you may not see quoted rates. if you decide to sell an individual bond before maturity, it's price change from your purchase price will reflect the difference in interest rates since you bought it, adjusted for the difference in the credit quality (if any) and for the remaining years to maturity (which would be less than when you bought it, assuming you did more than trade it). Keep in mind that a "round lot" in bonds is 100 bonds ($100,000 assuming $1,000 face amount per bond). Any individual bond purchase on a retail level is prone to unfavorable mark-ups by dealers relative to what a fund can get, and with size comes pricing benefits. Purchases below 100 bonds are more expensive, and possibly purchases of say 1,000 bonds get sharp prices. By owning individual bonds in small numbers you have more issue specific credit risk. You need a ton on money to get a good ladder and a good credit risk diversification in bonds. Also, it may be a lot easier to buy the bonds than sell them (at least for a reasonable price). Bonds don't trade like stocks. They are posted for sale and shopped around, but are not bought and sold at the click of a button.

    You don't avoid interest rate risk with individual bonds, but you do put up management headaches and other risks that are significant.

    Some would say, if you get all of your money back at maturity, where is the interest rates risk. Ignoring that you may not get all of your money back with every credit bond, you incur interest rate risk if rates rise by not earning current market yields along the way. If you buy a 3% bond and rates to 4%, then you don't get the 1% rate rise, while somebody else buys the same bond when the rates rise and gets the 4% yield.

    In theory, the price reduction in the bond if you sell it before maturity after rates have risen is about equal to the present value of the interest increase you would not receive if you held the bond to maturity.
    Feb 22, 2015. 04:02 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    I am pleased that it has worked well for you. So rather than "not understanding" the rates I quoted, you seem to mean you don't prefer them and have found more satisfactory alternatives.
    Feb 22, 2015. 03:48 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    What's to not understand. The rates quoted are the rates. The fact that you have invested in higher yielding funds doesn't make the rates quoted wrong. It is possible to get higher rates that those quoted for the same durations and qualities by using leverage. As for any levered investments, the price movements are magnified by the leverage. Leverage is generally borrowing short-term for lower rates and lending longer-term for higher rates. As long a the yield curve is steep (not flat or inverted) it can work. When is stops working, the losses are magnified, just as the yield is magnified while it works.
    Feb 22, 2015. 03:47 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    I think capitalizing a pension, SS or an annuity at a current market interest rates is a perfectly reasonable thing to do when measuring your asset allocation.
    Feb 22, 2015. 03:42 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    For the purpose of this article, I only considered US debt. Bank loans fit the US debt range, as do some other types such as GNMA. I was not attempting to be all-inclusive, but to make some general points about bonds, for which the three categories here are sufficient.

    I have held emerging market debt and bank loans at times, but not at this time. For me the EM debt currency risk is not something I wish to encounter at this time; and the rising rate benefit of bank loans seems to be a small benefit relative to the illiquidity risks in the asset category. Each may be reasonable assets in moderation in a portfolio that rebalances, but for me at this time other assets are more to my liking.
    Feb 22, 2015. 03:40 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    You are reading it wrong. The 2008 return is for 2008 (jan1 - dec 31) Each is a distinct (discreet -- sorry is this is an archaic term) calendar year
    Feb 22, 2015. 03:34 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    a "Discreet Calendar Year" is from Jan 1 - Dec 31 of a single calendar year
    Feb 20, 2015. 05:02 PM | Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    You are correct that GNMA bond funds were not part of the study. They could have been, but there is a limit to how long and detailed an article can be before nobody will read it. GNMA unlike most other bonds are subject to substantial prepayment risk. When rates are high and going down, the bonds bet prepaid by refinance as well as by normal home ownership turnover. When they are low and rising, the bonds don't get. The funds are high quality due to the gov't backing. You have to decide if the current yield is high enough for the uncertainty as to the duration of the bonds. As the rate of borrower sale of homes fluctuates, so does the duration of the bonds and the fund that holds them.

    They just weren't needed to make the central points of the article. There was no negative implication about GNMA bonds by their exclusion. Had to cut off somewhere.

    Also did not include developed market or emerging market foreign govt or corporate bonds, and did not mention bank loan funds.

    As for ETFs, they are the majority of the securities examined in this article.
    Feb 20, 2015. 02:06 PM | 2 Likes Like |Link to Comment
  • Bond Fund Choices For Retiree Portfolios [View article]
    Trendhaven,

    Yes, most conservative investors do not have a 39 year time horizon, but as mean reversion is a powerful force, being aware of long-term performance is important. And in recognition of your point, this article provided performance for each allocation over 1, 3, 5 10, 15, 20, 25, 30, 35 and 39 years, as well as performance for individual calendar years from 2008 through 2014.

    Your suggestion that I also include rolling periods, is something I will do in subsequent articles on this topic.
    Feb 20, 2015. 01:56 PM | 1 Like Like |Link to Comment
  • Shiller Says Buy Russia [View article]
    Me too. Pakistan was up massively last year, but I wouldn't even visit there even if you paid me to do so, let alone invest there -- yes, your view and mine are in sync
    Jan 31, 2015. 08:40 AM | 1 Like Like |Link to Comment
  • Shiller Says Buy Russia [View article]
    I would either most likely -- just commenting on Shiller advice, which in my view is all quantitative without sufficient qualitative view

    He did hedge himself well though by saying 5-10 year horizon -- but damn few investors will stay put through 5-10 years of massive volatility

    That said they could still roar back

    Greece recently was one of the best stock markets in terms of price rate of change
    Jan 31, 2015. 08:38 AM | Likes Like |Link to Comment
  • Shiller Says Buy Russia [View article]
    absolutely agree
    Jan 31, 2015. 08:35 AM | Likes Like |Link to Comment
  • Shiller Says Buy Russia [View article]
    Yes, I am aware of that. NILSY did not pass the $1,000 minimum trading volume per minute threshold of our filter. As a practical matter we won't buy any stock that does less than $10,000 per minute, and in most cases $25,000 per minute. It is a lot easier to get into thin stocks than to get out.
    Jan 30, 2015. 08:55 AM | 1 Like Like |Link to Comment
  • 2 Important Credit Market Indicators Of Stock Market Declines [View article]
    Usually fully invested in something (not just stocks all the time), cash is very short term so in money mkt
    Jan 18, 2015. 07:26 PM | Likes Like |Link to Comment
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