Gyroscopic Investing

I just had this is an idle thought spurred by the mention somewhere else of a 50% Intermediate Bond 25% Gold 25% Stocks mix.

With the ability to buy and sell VGLT and EDV at Vanguard for free, is it not a reasonable supposition that some mixture of the two would be a viable stand in for the bond portion?

I just had this thought and haven't even attempted to deduce if it's even viable or what that ratio of VGLT to EDV might be, or if it wouldn't just be simpler to use VGLT alone and accept that it's not going to work quite right.  My only reason for thinking some EDV would be good is that its increased volatility should offset the inherent shortcomings of VGLT alone, that the increased volatlity of the stripes should offset the loss of "explosive" power of VGLT's too short bonds.

It's probably not the worst idea or the stupidest thing you could do, but it's something I'm just idly amusing myself with.

There is nothing wrong with doing something like a 50%/50% VGLT/EDV allocation within the PP's 25% LT treasury piece.

There is, however, the potential here to come up with a solution that is more complicated than the problem, but I don't know why it wouldn't work.

When rebalancing the whole portfolio, just rebalance the LT treasury piece back to the 50/50 referred to above.

I think that VUSTX would fill the same role as VGLT.

I like the maximum volatility in the smallest package, so I am a big fan of EDV.

There may be some difference in performance between the 50/50 approach discussed here and 100% TLT, but I'll bet they are pretty close.

MediumTex wrote: There is nothing wrong with doing something like a 50%/50% VGLT/EDV allocation within the PP's 25% LT treasury piece.

There is, however, the potential here to come up with a solution that is more complicated than the problem, but I don't know why it wouldn't work.

When rebalancing the whole portfolio, just rebalance the LT treasury piece back to the 50/50 referred to above.

I think that VUSTX would fill the same role as VGLT.

I like the maximum volatility in the smallest package, so I am a big fan of EDV.

There may be some difference in performance between the 50/50 approach discussed here and 100% TLT, but I'll bet they are pretty close.

Out of curiosity MediumTex, if you have direct bonds for your LT exposure, what percentage do you keep of direct bonds versus EDV? I understand using EDV for the max volatility but then you have an ETF versus direct bond ownership so elimination of a paper-wall. Also not sure if anyone has backtested to say what would be the best if you said for your LT exposure to be hypothetically 80% direct 30 year bonds and 20% EDV, etc.

MediumTex wrote: There is nothing wrong with doing something like a 50%/50% VGLT/EDV allocation within the PP's 25% LT treasury piece.

There is, however, the potential here to come up with a solution that is more complicated than the problem, but I don't know why it wouldn't work.

When rebalancing the whole portfolio, just rebalance the LT treasury piece back to the 50/50 referred to above.

I think that VUSTX would fill the same role as VGLT.

I like the maximum volatility in the smallest package, so I am a big fan of EDV.

There may be some difference in performance between the 50/50 approach discussed here and 100% TLT, but I'll bet they are pretty close.

In the beginning of Feb 2011 I sold the TLT  that I had in my taxable account for a tax loss harvest. I bought EDV/VGLT even split to replace it.. I had just rebalanced my portfolio near the end of Jan  2011. About 1/3 of  my long term bonds are TLT in IRA the rest taxable EDV/VGLT my performance from last rebalance point to June 11 2012 is plus 18.82%  and year to date plus 3.31%. My long term bond also now stand at 31.11% of total portfolio and as far as the even split 50/50 EDV/VGLT that is now 55.9 EDV/ 44.1 VGLT. It is interesting to see how this plays out.