I have seen several threads relating to where is the best place for the LT bond allocation in PP. If one can live with the 20yr maturity of TLT why not that over actually holding individual 30 yr treasury bonds?
In the past I've done both, and the problem I've had is reinvesting dividends on the treasuries. Also re-balancing can be a bit of a pain, and record keeping with a single etf is a lot easier than keeping up with several individual bonds. I can see the appeal of safety in actually holding US Treasuries but hey, if TLT goes under we may be in such bad shape nothing will matter.
treasuries/TLT
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dualstow
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Re: treasuries/TLT
Harry Browne said good things about TLT in the radio archives.
I think the one concern for some of us is that BlackRock (or whoever runs TLT) could mess with what's under the hood- lending out securities, holding fewer pure treasury bonds, etc. Of course, if you keep up with changes in the prospectus, everything should be fine. The point is that there could be a risk beyond the performance of treasuries themselves.
Although I still hold some TLT, I like the safety of directly held treasurys. Also, they are free to trade. My portfolio isn't that big, so I also don't worry about immediately reinvesting the interest payments. I just add them to cash or spend the money on bills.
I think the one concern for some of us is that BlackRock (or whoever runs TLT) could mess with what's under the hood- lending out securities, holding fewer pure treasury bonds, etc. Of course, if you keep up with changes in the prospectus, everything should be fine. The point is that there could be a risk beyond the performance of treasuries themselves.
Although I still hold some TLT, I like the safety of directly held treasurys. Also, they are free to trade. My portfolio isn't that big, so I also don't worry about immediately reinvesting the interest payments. I just add them to cash or spend the money on bills.
Re: treasuries/TLT
Yeah, I've heard that concern and it may be valid. But is it actually a concern that any weird management activity could lead to a bond portfolio that's not in alignment with the PP, or is it a concern that it could lead to a financial default of the ETF? I know there also some concerns with the gold ETF's but I don't think I've ever heard of an ETF collapsing.
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dualstow
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Re: treasuries/TLT
I don't know, but I didn't ever worry about the etf defaulting. For me it's about the former choice, alignment with the pp.
Re: treasuries/TLT
If there is a SHTF financial crisis scenario that leaves Long-term treasury bonds way up, and my fund that was SUPPOSED to be (or so I thought) holding LTTs was LENDING those bonds to people who were BETTING the opposite way, I see this as ripe for default-fears.versed1967 wrote: Yeah, I've heard that concern and it may be valid. But is it actually a concern that any weird management activity could lead to a bond portfolio that's not in alignment with the PP, or is it a concern that it could lead to a financial default of the ETF? I know there also some concerns with the gold ETF's but I don't think I've ever heard of an ETF collapsing.
You don't own the bonds.
The fund doesn't own the bonds.
The party who "borrowed" the bonds doesn't own the bonds, but owes the fund the bonds at a future date.
I would like the manager of the ETF explain to me how my long-term bonds stay safe in a financial crisis if I use his ETF to own them.
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Ad Orientem
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Re: treasuries/TLT
FWIW I am fine with ETFs for everything except the gold. Gold is the disaster insurance. That said I am not a fan of Black Rock. I do however generally trust Vanguard. VGLT works fine from my perspective. Yes, it is theoretically possible that you could see a default in a massive SHTF scenario, but I think it so unlikely that I am not loosing sleep over the possibility. The scenario in question would almost certainly have to be an extreme deflationary depression. Those don't just happen overnight. Markets, including LTT ETFs would (I think) have time to adjust as the situation got worse.
Is there risk? Yes. Is it significant? IMHO, no. For me the very slight risk is an acceptable trade off for the enormous convenience. Others may have different opinions though. It all boils down to what is likely to keep you awake at night.
Is there risk? Yes. Is it significant? IMHO, no. For me the very slight risk is an acceptable trade off for the enormous convenience. Others may have different opinions though. It all boils down to what is likely to keep you awake at night.
Last edited by Ad Orientem on Mon Jun 30, 2014 8:36 pm, edited 1 time in total.
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Re: treasuries/TLT
What is so difficult about purchasing the actual bonds versus TLT?
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Ad Orientem
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Re: treasuries/TLT
Purchasing isn't the problem. Calculating their value over time can be a headache.Reub wrote: What is so difficult about purchasing the actual bonds versus TLT?
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Re: treasuries/TLT
I've been back and forth on this, and settled on TLT for my treasuries. It tracks better in my budgeting software than individual treasuries, adjusts interest rates automatically as they fluctuate, pays interest monthly, and generally avoids capital gains that you'd normally see from selling 20-year treasuries and buying new 30-year ones. For me, buying one fund is also just easier and keeps me from over-thinking it. I understand that it has more counter-party risk than holding treasuries directly, but not enough to make me lose any sleep.
I also own IAU for gold, but choose to cap my BlackRock investments at 50% (and I'd switch to GLD or SGOL if they had comparable ERs). FWIW, I wouldn't put more than half of my money in any single company's hands -- even Vanguard.
I also own IAU for gold, but choose to cap my BlackRock investments at 50% (and I'd switch to GLD or SGOL if they had comparable ERs). FWIW, I wouldn't put more than half of my money in any single company's hands -- even Vanguard.
Last edited by Tyler on Mon Jun 30, 2014 9:42 pm, edited 1 time in total.
Re: treasuries/TLT
TLT is not a nice simple mutual fund where you send them money, they create new shares, and they buy bonds with the money you sent (and the reverse happens when you sell). It's a complex ETF run by one of the smartest greediest firms on Wall Street. To start with, like any ETF its share price is only indirectly related to the value of its assets. Yes, ETFs are designed so that their share price should stay close to the value of their assets - but there's definitely no guarantee of this. I haven't looked at it lately, but the last time I looked (see http://gyroscopicinvesting.com/forum/bo ... /#msg59765) it's actual assets were:
60% 20+ year treasury bonds
40% IOUs backed by cash collateral invested in Black Rock's own MM
The MM was in turn loaned out (as short term loans, presumably backed by nothing), about half to major banks (Morgan Stanley, Credit Suisse, JP Morgan, etc).
There are two concerns here. One is whether there's anything that might cause whoever borrowed the 40% of their bonds that are loaned out not to be able to return them (per moda's comments). The other is whether the fund can pay back the collateral if whoever has borrowed the bonds does return them (or whether the collateral is worth as much as the bonds would be worth if the borrowers default).
In my book owning TLT rather than individual bonds is like driving around in a motorcycle rather than a M1 Abrams tank. They'll both typically get you where you're going, but if you're involved in a crash I think it's clear which one you'd rather be driving.
60% 20+ year treasury bonds
40% IOUs backed by cash collateral invested in Black Rock's own MM
The MM was in turn loaned out (as short term loans, presumably backed by nothing), about half to major banks (Morgan Stanley, Credit Suisse, JP Morgan, etc).
There are two concerns here. One is whether there's anything that might cause whoever borrowed the 40% of their bonds that are loaned out not to be able to return them (per moda's comments). The other is whether the fund can pay back the collateral if whoever has borrowed the bonds does return them (or whether the collateral is worth as much as the bonds would be worth if the borrowers default).
In my book owning TLT rather than individual bonds is like driving around in a motorcycle rather than a M1 Abrams tank. They'll both typically get you where you're going, but if you're involved in a crash I think it's clear which one you'd rather be driving.