Gyroscopic Investing

Hi everyone,

I’ve been doing some research on long-term bonds (e.g., 30-year maturity), and I’m trying to better understand the real differences between buying a bond directly (“paper bond”) versus buying an ETF that holds long-duration bonds (like TLT, ZROZ, or IGLB).

Here’s what I’ve gathered so far — please correct or clarify where needed:
1. Buying a 30-year bond directly and holding it to maturity seems to provide a known return upfront, assuming no default. The coupon is fixed, and the yield to maturity (YTM) is predictable — I’ll get all the interest payments and principal at the end.
2. Buying a long-term bond ETF, on the other hand, does not offer a fixed return. Even if the bonds inside the ETF have fixed coupons, the ETF’s value fluctuates daily and it never “matures” — it just keeps rotating bonds to maintain a long-duration profile.

So here’s my main question:

If my goal is long-term income or exposure to long bonds, is there a real advantage to using ETFs instead of just holding individual bonds to maturity (especially in this high-rate environment)?

Also, I’m curious:
• Do ETF yields (like SEC yield) really reflect what I’ll earn over time?

Would love to hear how more experienced investors approach this choice.

Thanks in advance!

actually not quite the case .

in order to maintain the power of the long bonds they do not get held to maturity .

you pretty much have to sell them off every 5 years and replace them with the longest maturity.

so when it comes to holding a constant duration like you would for a portfolio that counts on a certain lifting power you don’t have a maturity on them either and what you get when you rebalance is unknown in both cases .

there is no way to maintain these individual bonds yet have a constant duration that’s needed with out selling before maturity as each year your lifting power would diminish without selling and rebuying the longer maturity back.

so it’s more a falllacy about individual bonds unless you are buying for income and can just let them run down in duration

back in the old day harry used to recommend the benham capital target date funds .

they were bond funds with fixed maturity dates . but every five years you had to sell them and buy longer dated ones , so even they , having fixed maturity dates and were identical to holding individual bonds you still didn’t hold them longer than about 5 years

Way back, if my memory is correct, there was a British forum member called Clive.

I believe he advocated holding a 50% long term bond allocation in a bond ladder. Each year a bond would mature and you would purchase another 30 year bond. It would appear that ensured you never sold a bond at a loss as they were held to maturity. Perhaps some other forum members can recall more details?

The average bond maturity date would be 15 years, so it would be another method of implementing the "Lemonade Permanent Portfolio". https://wiki.earlyretirementextreme.com ... )_lemonade

the pp was designed for a much longer maturity

tlt has an effective maturity of 25.67 years


harry specifically says on page 354 of why the best laid plans go wrong , maturity needs to be at least 25 years to qualify.

page 355 says anytime the maturity of the 30 year bond falls to 25 years , you need to replace it with another 30 year.

anything other than that criteria is just another dr frankenstein version someone came up with .

there are loads of dr frankenstein versions out there

but they are not a pp once the changes are made to the concept.

in fact having half the money in a 15 year weighted maturity instead of at least 25 years and half in cash instruments would result in not even the pull of 100% of the fixed income side in an intermediate term bond bond . definitely not what harry wanted in his concept.

so there is a reason why he wants you to maintain at least that 25 year maturity

so in practice the reality is their really is no difference in the use of an etf or individual bonds for purposes of the pp.

i still have my original copy of the book which is decades old now

EDV is even longer than TLT in duration

mathjak107 wrote: ↑Mon Jun 30, 2025 3:05 am the pp was designed for a much longer maturity

tlt has an effective maturity of 25.67 years


harry specifically says on page 354 of why the best laid plans go wrong , maturity needs to be at least 25 years to qualify.

page 355 says anytime the maturity of the 30 year bond falls to 25 years , you need to replace it with another 30 year.

anything other than that criteria is just another dr frankenstein version someone came up with .

there are loads of dr frankenstein versions out there

but they are not a pp once the changes are made to the concept.

in fact having half the money in a 15 year weighted maturity instead of at least 25 years and half in cash instruments would result in not even the pull of 100% of the fixed income side in an intermediate term bond bond . definitely not what harry wanted in his concept.

so there is a reason why he wants you to maintain at least that 25 year maturity

so in practice the reality is their really is no difference in the use of an etf or individual bonds for purposes of the pp.

i still have my original copy of the book which is decades old now

Mat

Thanks for the clarification and the reference to pages 354–355 — that really helps. I totally understand now that the original concept relies on maintaining that long maturity for the bond portion, and anything less kind of breaks the core mechanics Harry envisioned.

But I have a follow-up question, maybe more practical than theoretical:

If we hold a 30-year Treasury bond to maturity, we know we’ll get back par value (plus coupons). So barring default, we can’t lose money, right?

However, with a 30-year bond ETF like TLT — even if we hold it for 30 years — we’re not really holding the same bonds for 30 years. The fund is constantly rolling over its holdings to maintain the 25–30 year maturity window. So…

Isn’t it possible that, after 30 years of holding TLT, we could still end up with a loss in nominal terms, if we happened to start during a period of very low yields and rates rose steadily over time?

I get that this is a theoretical edge case, but it made me wonder whether:
• Individual bonds held to maturity are more predictable in real-world retirement planning;
• ETFs might bring more volatility and uncertainty long-term — even if aligned with the 25-year average maturity.

Would love your take — or anyone else’s — on this angle.

Thanks again for your insight!

If you buy EDV with 5% yield you'll get all that after 25 years. what the principle is worth depends on the rate at time of sale

many threads on bogleheads

edit1 random content https://www.youtube.com/watch?v=vsEv8yFfNYY

Following from BoglerDudes comment...

https://www.bogleheads.org/wiki/Individ ... _bond_fund

if inflation over 30 years ate up half your purchasing power , then getting back your 1k in an individual bond and it buys 500 dollars worth of stuff, that is a loss no matter how you look at it .

the fund does not have a fixed rate like the bond so your interest rate will change .

over time if rates and inflation rise then your nav goes down but your interest rate goes up .

the fund duration is how long it will take to have a rise in rates equal the nav fall .

so at the end of the day if you hold for the duration you should be close to the same .

not always but most of the time.

likely not enough difference to even worry about