Treasury Bond Buying Tutorial

Discussion of the Bond portion of the Permanent Portfolio

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mandynshane

Re: Treasury Bond Buying Tutorial

Post by mandynshane » Thu Oct 27, 2011 6:04 pm

anyone know anything about treasury direct?
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craigr
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Re: Treasury Bond Buying Tutorial

Post by craigr » Fri Oct 28, 2011 2:44 pm

Thank you Gumby.

Vanguard's bond desk is almost as easy to use as well (but Fidelity's interface looks amazingly simple and others should learn from it). Buying bonds is not hard and is what I do myself and recommend if you are able. They just sit there and pay interest once this is all done.

Thanks again Gumby!
Last edited by craigr on Fri Oct 28, 2011 2:48 pm, edited 1 time in total.
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Re: Treasury Bond Buying Tutorial

Post by Lone Wolf » Fri Oct 28, 2011 3:02 pm

Well done!

I use this myself and can verify that it's just as easy as it looks.  In fact, I use these screens to purchase individual T-bills and T-notes to construct a ladder for the "cash" portion of the portfolio.  That covers both "cash" and "bonds".

If you find yourself a nice, safe place for physical bullion (like a cheap safe deposit box), you're looking at direct ownership and a 0% expense ratio for the great majority of your portfolio.  There's a lot to like about that.
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Re: Treasury Bond Buying Tutorial

Post by MediumTex » Fri Oct 28, 2011 3:16 pm

Lone Wolf wrote: If you find yourself a nice, safe place for physical bullion (like a cheap safe deposit box), you're looking at direct ownership and a 0% expense ratio for the great majority of your portfolio.  There's a lot to like about that.
0% expense for 50% of the PP in the form of LT and ST treasuries.

0% expense for 25% of the PP in the form of safe deposit box at neighborhood bank that provides the box free to longtime customers.

Tiny expense ratio for stock market index fund.

It's one more thing to like about the PP.
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Re: Treasury Bond Buying Tutorial

Post by moda0306 » Fri Oct 28, 2011 3:18 pm

I think we should mention the implied "load" of gold buying (I'll leave treasury-buying out since Fidelity allows it for free).

Also storage or insurance on physical gold should also be added as another small asterisk.

Just playing devil's advocate.  I fully agree with MT that the cheapness is stunning.
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Re: Treasury Bond Buying Tutorial

Post by Lone Wolf » Fri Oct 28, 2011 9:12 pm

moda0306 wrote: I think we should mention the implied "load" of gold buying (I'll leave treasury-buying out since Fidelity allows it for free).
True!  Still, this is only a one-time charge and (if you shop around) not a terribly big one.  For example, Tulving's offering Maple Leaf coins for $35 over spot and buying them back for $17 over spot.  That's an $18 spread per coin, so just a hair over 1%.  Not much in the scheme of things if you hold your gold for a long time.

Also, if you're macho enough (and rich enough!), get yourself a 1 kilo gold bar for straight-up spot.  :)
moda0306 wrote: Also storage or insurance on physical gold should also be added as another small asterisk.
Insurance may not be a bad way to spend some of your PP riches but it's not a requirement.  Storage in a safe deposit box at your local bank is cheap, often around $30-$50 per year.  If you hold even 20 ounces of gold in a $30 safe deposit box, that works out to less than 0.08% per year.
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Re: Treasury Bond Buying Tutorial

Post by Gumby » Fri Oct 28, 2011 10:32 pm

craigr wrote: Thank you Gumby.

Vanguard's bond desk is almost as easy to use as well (but Fidelity's interface looks amazingly simple and others should learn from it). Buying bonds is not hard and is what I do myself and recommend if you are able. They just sit there and pay interest once this is all done.

Thanks again Gumby!
Not a problem. And thank you for shedding light on some of the questionable practices of Treasury bond funds.

Craigr, I noticed that you posted a link to this tutorial. That's great. However, if you, or anyone else, wants to copy/share this tutorial to your own site, you should feel free to do so. Copy the text and photos, and/or edit the text. Do whatever you like. That's why I made it. Knowledge is power and this kind of knowledge should really be shared and copied with as many people as possible so that people can take their finances into their own hands.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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Re: Treasury Bond Buying Tutorial

Post by rickb » Sat Oct 29, 2011 4:20 pm

It's worth noting that the very same process can be used to buy short term treasuries at auction to set up a ladder with whatever duration you want with as many rungs as you want instead of relying on a treasury MM or ETF such as SHY for your cash as well.  Fidelity even has an "auto roll" feature where you can sign up to have the principal for maturing bonds automatically reinvested in bonds of the same term.  If you set up, say, a 2-year ladder with 8 rungs then 1/8th of your cash in this ladder matures every 3 months.  With auto-roll, if you do nothing then every three months 1/8th of your cash simply rolls over into another 2 year bond (bought at auction).  If you need some cash for rebalancing or any other reason, you can prevent the auto-roll from happening and when the bond matures the principal is deposited in your brokerage cash account.  You can do the same thing through TreasuryDirect as well.  See
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Re: Treasury Bond Buying Tutorial

Post by dualstow » Sun Oct 30, 2011 9:59 am

Brilliant work, Gumby!

I use Fidelity for long bonds, too, since my 401(k) is there. For those of you who buy at auction like I do, I will add that you can sign up for email alerts about new offerings. The email looks like this:
Fidelity is pleased to announce the possibility for Brokerage customers to participate in next week’s U.S. Treasury Note/Bond Auction(s):

UST Maturing 01/26/2012 Auction Close Date:  10/24/2011
UST Maturing 04/26/2012 Auction Close Date:  10/24/2011
UST Maturing 10/31/2013 Auction Close Date:  10/25/2011
UST Maturing 10/31/2016 Auction Close Date:  10/26/2011
UST Maturing 10/31/2018 Auction Close Date:  10/27/2011
Link: https://www.fidelity.com/fixed-income-b ... ols/alerts
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Re: Treasury Bond Buying Tutorial

Post by 6 Iron » Tue Nov 01, 2011 11:02 pm

I sold about 80% of my TLT today at the market open, and I have an internal conflict. With the bulk of my long bonds liquidated, I feel as if my left flank is uncovered as I have the three business days before I can buy bonds. On the other hand, and I realize that I am violating the code here, but, I am extraordinarily tempted to market time or dollar cost average my move back in.

What would you do?
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Re: Treasury Bond Buying Tutorial

Post by Gumby » Tue Nov 01, 2011 11:39 pm

6 Iron wrote: I sold about 80% of my TLT today at the market open, and I have an internal conflict. With the bulk of my long bonds liquidated, I feel as if my left flank is uncovered as I have the three business days before I can buy bonds. On the other hand, and I realize that I am violating the code here, but, I am extraordinarily tempted to market time or dollar cost average my move back in.

What would you do?
When you covert your TLT to cash, you've effectively turned 50% of your portfolio into cash. So, a portfolio consisting of (roughly) 50% cash, 25% stocks and 25% gold probably isn't going to be all that different from a traditional 4x25 PP over the span of three days. That's because you've basically turned your portfolio into a version of PRPFX (which can't own very many Long Term Bonds). Actually, your portfolio will most closely resemble Clive's "Rate Tart" PP — which held up very well through 2008-2009. The only difference between the "Rate Tart" PP and the 4x25 PP was that the 4x25 PP recovered more quickly in Dec 2008, when the LTTs kicked in big time.

http://gyroscopicinvesting.com/forum/ht ... 730#p12730
(Keep in mind that Clive's comments are deleted from the "Rate Tart" PP discussion)

So, you can probably relax more than you think. But, my recommendation is still to buy your bonds sooner rather than later, since we may be experiencing some high volatility in the next few weeks as Greece appears to move closer and closer to its eventual default. Do what feels right, but know that it probably won't make a tremendous difference either way.
Last edited by Gumby on Wed Nov 02, 2011 12:02 am, edited 1 time in total.
Nothing I say should be construed as advice or expertise. I am only sharing opinions which may or may not be applicable in any given case.
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Re: Treasury Bond Buying Tutorial

Post by foglifter » Wed Nov 02, 2011 1:16 pm

Gumby, thank you very much for posting your tutorial. Now I feel ashamed that I've been with Fidelity for a long time and never even thought about the bond buying feature. In fact, I always thought that directly buying bonds is something very complicated and costly. And now I feel enlightened.

A couple of questions came to my mind after reading your post:

1. Market order vs. limit order: does it really matter which type of order to use?

2. Is it better to use a ladder of bonds spreading the purchases in time or just sell all my EDV/TLT and buy bonds at once?

3. What is the difference between buying at the auction or secondary market?
Last edited by foglifter on Wed Nov 02, 2011 1:19 pm, edited 1 time in total.
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