VUSTX is Vanguard's Long Term Treasury Bond fund. The maturity is only 20 years. That's too short. Harry likes 25 years average maturity.
TLT is 28 years but there's fees associated with trading.
VUSTX can be traded for free as a mutual fund.
What if when I make my switch into PP later this year (with a $100k model portfolio), I go out and buy 24 blocks of $1k 30 year Treasuries at auction. And $1k of VUSTX.
My average maturity will be well above 25 years. Then when I do my first rebalance in a year or two (whenever it's needed), or when I add new money through contributions, I add money to VUSTX for no transaction fees.
I keep an eye on my VUSTX and Direct Bond average maturity. Once it drops below 25 years, I liquidate my direct bonds, and most of my VUSTX and rebuy new 30 year treasuries at auction, just keeping about $1k in VUSTX to keep it open.
I think my brokerage has fees ONLY with selling secondary market treasuries. By using a mix of VUSTX and real bonds, I should theoretically only incur trading fees every 4 years or so.
This method is cheaper than using 100% TLT for my LT Bond position, and provides greater security because I am directly holding the bonds.
Strategy: 90% Direct 30 Year Bond Holding/ 10% VUSTX
Moderator: Global Moderator
Re: Strategy: 90% Direct 30 Year Bond Holding/ 10% VUSTX
There is nothing wrong with that approach if it gets you going with the PP.
After you have held your PP for a while, you may see things differently.
Whatever gets you going, though, by all means do it.
After you have held your PP for a while, you may see things differently.
Whatever gets you going, though, by all means do it.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
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MiniB
Re: Strategy: 90% Direct 30 Year Bond Holding/ 10% VUSTX
MediumTex,
Please expand on your comment. Do you think that eventually I may wish to hold 100% individual bonds?
My issue is costs to trade. Vanguard and Schwab are my two brokerages and both have high fees to sell bonds on secondary market. About $40 each time. So if I rebalance once a year that means $40 down the drain plus another $15 or so to rebalance ETFs. That's about a 0.07% added Expenses plus the expenses on the Gold and Stock ETFs.
If I hold 10% of my bonds in VUSTX then I think I can cut back on the $40 bond trades to every 2 or 3 years, and tradeoff with spending 0.23% ER on the small chunk of VUSTX I have.
Please elaborate on your comment. Perhaps I am thinking about it the wrong way or perhaps I should find a brokerage that doesnt charge for selling treasuries on secondary market?
Please expand on your comment. Do you think that eventually I may wish to hold 100% individual bonds?
My issue is costs to trade. Vanguard and Schwab are my two brokerages and both have high fees to sell bonds on secondary market. About $40 each time. So if I rebalance once a year that means $40 down the drain plus another $15 or so to rebalance ETFs. That's about a 0.07% added Expenses plus the expenses on the Gold and Stock ETFs.
If I hold 10% of my bonds in VUSTX then I think I can cut back on the $40 bond trades to every 2 or 3 years, and tradeoff with spending 0.23% ER on the small chunk of VUSTX I have.
Please elaborate on your comment. Perhaps I am thinking about it the wrong way or perhaps I should find a brokerage that doesnt charge for selling treasuries on secondary market?
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MiniB
Re: Strategy: 90% Direct 30 Year Bond Holding/ 10% VUSTX
MediumTex,
I read a little more of this forum, and now think I can use 10% EDV with my actual long bonds. I can trade EDV commission free in Vanguard Brokerage. Would that be better? 90% actual bonds and 10% EDV?
I read a little more of this forum, and now think I can use 10% EDV with my actual long bonds. I can trade EDV commission free in Vanguard Brokerage. Would that be better? 90% actual bonds and 10% EDV?
Re: Strategy: 90% Direct 30 Year Bond Holding/ 10% VUSTX
Sure, that's fine.MiniB wrote:Would that be better? 90% actual bonds and 10% EDV?
Remember that in the last 20 years, there have been something like 11 or 12 PP rebalancing events.
Whether you use 20%/30% or 15%/35% rebalancing bands, you're not going to be rebalancing very often. I wouldn't worry about rebalancing transaction costs.
I think that people have a tendency when starting a new strategy like the PP to want to implement it in an ultra-perfect and optimal way. Over time, though, I think this tendency gives way to more of a routine in which you just follow the strategy and trust that it will deliver.
But do whatever you are comfortable with. I don't think that the different methods mentioned would have much effect on returns one way or another, but if one approach allows you to sleep better, use that one.
Q: “Do you have funny shaped balloons?”
A: “Not unless round is funny.”
A: “Not unless round is funny.”
-
MiniB
Re: Strategy: 90% Direct 30 Year Bond Holding/ 10% VUSTX
MT:MediumTex wrote:
I think that people have a tendency when starting a new strategy like the PP to want to implement it in an ultra-perfect and optimal way. Over time, though, I think this tendency gives way to more of a routine in which you just follow the strategy and trust that it will deliver.
I completely understand your meaning now. You should see the 10 sheet Excel spreadsheet I created to maintain my PP once I start it. Harry Browne would roll in his grave. I set up complex formulas such as:
Liquid VS Illiquid CASH. No More than 50% Illiquid CASH. Illiquid = HSA + Annuities + MMF within a 401k + IBONDS (within 1 year of issuance). Theoretically I can juice extra returns on Cash, and as long as at least 50% are liquid Treasury Bills/MMF then I can rebalance as necessary while waiting for FDIC insurance to kick in.
So now I have a multi page Excel spreadsheet with all these ideas. Meanwhile Harry Browne selected 25-25-25-25 for the simplicity of it. I have a background in Finance and I wouldnt like it if it was too simple
