Sell 25 buy 30 yrs bonds (no tax on cap gains)

[LazyInvestor]

Given that as a NRA I don't have to pay capital gains tax, I'm considering selling my 25 yrs bonds and buying 30 yrs bonds rather than waiting until they're 20 yrs in duration. OK to do this?

[bedraggled]

What is an NRA, please.

[barrett]

I believe NRA is non-resident alien. Please correct me if I am wrong.

LazyI, You may have just made a typo but there is a difference between bond maturity and duration. The 30-year 11/15/43 issues I bought last year all have a duration of 15-19 years (there's a tool on Fidelity's website that allows me to see that). Others on here can explain the difference between maturity and duration much better than I can.

From my understanding, by selling what you have now and buying the new issues, you'd be upping the volatility of your bond portion a bit because bonds with a lower coupon rate are more volatile than bonds with a higher coupon rate. Whether this is a good or bad move depends on knowing the future direction of interest rates.

Again, from my understanding, bonds that are in the 20-30 years until maturity range have more or less the volatility of stocks and gold. As long as you are not way over or underweighted in bonds, whether you hold onto what you have or sell and by longer maturities probably won't make a huge difference in the performance of your portfolio. The thing about the PP is that there is not much maintenance required once it's set up. I know that I often try to figure out little tweaks but their effect on my returns is probably puny. Just my two cents.

[LazyInvestor]

Yes, I meant Non-Resident Alien (NRA).

I see, I guess I should somehow calculate transaction costs as opposed to a difference that 25 vs. 30 years maturity makes.

[dragoncar]

Yes, I meant Non-Resident Alien (NRA).

I see, I guess I should somehow calculate transaction costs as opposed to a difference that 25 vs. 30 years maturity makes.

I've rec Nyla found transaction costs to be quite high.  Start an order and see how it goes.  I also understand that bonds have generally been underweight for volatility, so more volatility will help

[barrett]

Start an order and see how it goes.  I also understand that bonds have generally been underweight for volatility, so more volatility will help

Excellent advice to start an order. You can sometimes (but not always) divine the expenses by doing this.

Dragoncar, what is your source on the bond volatility? Generally they would be expected to be more volatile at lower rates, not less. Thanks.

[bedraggled]

Does anyone care to add Treasury Direct to the conversation?

[mukramesh]

My Fidelity 401k and Vanguard Roth IRA have commission free trading for US Treasuries. I'm also curious if keeping the maturity between 25-30 years makes any difference vs. 20-30.

[hoost]

My Fidelity 401k and Vanguard Roth IRA have commission free trading for US Treasuries. I'm also curious if keeping the maturity between 25-30 years makes any difference vs. 20-30.

Look at the modified duration for the different bonds.  This will tell you the expected % change in price of the bond for a 1% change in interest rate.  I imagine there is probably a calculator on the web that can figure it out for you if your broker doesn't show it.

[mukramesh]

For everyone's information these are the approximate duration values given by Fidelity for bonds of different maturity:
20yrs- 14.6
25yrs- 16.4
30yrs- 20.8

Obviously there is more 'juice' (volatility) in the longer maturity bonds. But that still doesn't really help us determine what is best for the PP; specifically are we better off keeping the duration as high as possible? Since US Treasuries trade commission free, I could even just swap out 29year treasuries for new 30year bonds every year if that is really optimal.

Any thoughts?

[hoost]

I guess my thought at the end of the day would be to just buy some EDV and forget about it if you want to extend the duration (increase volatility) some more.  Messing around buying and selling individual treasuries is a lot of hassle, and IIRC some have said they faced unforeseen transaction costs when selling.  I would definite research the transaction costs and bid/ask spreads on the bonds to decide whether or not it's worthwhile. 

Durations For Reference:
TLT: 17.79yrs
EDV: 25.0 yrs
VGLT: 17.1 yrs

I guess the thing to look at is the duration of your entire long bond portfolio.  Are your only holdings 25yr bonds?  Are you adding to your holdings regularly and buying new 30yr issues?  I think as long as you're in the 15-20 yr duration range for now, you should be fine.

EDIT: What I'm saying is I'd leave it alone for now and direct new contributions either to new 30yr bonds, or one of the bond funds until you have enough to buy whole bonds.

[murphy_p_t]

mukramesh...this thread may help  http://gyroscopicinvesting.com/forum/pe ... s%27-heel/

or create more questions?!