A.I.M. Users Bulletin Board

[ls7550]

long term treasury once rates PEAK

The following is US data for total gains taken from http://www.bogleheads.org/wiki/Simba%27s_backtesting_spreadsheet

Biblical type asset allocation where in the book of Ecclesiasticus something like 11-5 or 11-9 or thereabouts it advocates (to paraphrase) : divide between 7 or 8 for you never know what shit is headed your way.

For US 6 way equal split of small cap, Europe/Asia/Far East, TIPS, Long Term Treasury bonds, Short Term Treasury bonds and gold - have a look at how long term treasury bonds performed when short term treasury bonds rose from around 3% up to 19% i.e. across 1972 to 1982.

Year	SCV	EAFE	TIPS	LTT	STT	Gold	Infl't	Best	Rest	Average 
 1972	6.75	35.93	-2.59	5.43	3.63	48.66	3.41	48.7	9.8	16.3 
 1973	-26.17	-15.13	-3.99	-1.36	5.82	71.24	8.71	71.2	-8.2	5.1 
 1974	-18.39	-23.41	4.99	4.13	8.82	72.02	12.34	72.0	-4.8	8.0 
 1975	54.15	35.04	16.17	8.92	7.62	-27.62	6.94	54.1	8.0	15.7 
 1976	53.25	2.22	-0.30	16.50	8.62	-4.48	4.86	53.2	4.5	12.6 
 1977	21.52	17.78	7.78	-0.96	3.43	22.15	6.70	22.2	9.9	12.0 
 1978	21.52	32.24	9.68	-1.46	5.23	36.47	9.02	36.5	13.4	17.3 
 1979	35.09	4.52	9.78	-1.46	10.11	125.65	13.29	125.6	11.6	30.6 
 1980	25.11	22.27	15.17	-4.25	13.80	14.73	12.52	25.1	12.3	14.5 
 1981	14.64	-1.27	5.79	1.64	18.59	-32.87	8.92	18.6	-2.4	1.1 
 1982	28.21	-1.17	-7.78	40.04	19.19	14.49	3.83	40.0	10.6	15.5 
 1983	38.28	24.26	16.87	0.44	8.32	-16.64	3.79	38.3	6.6	11.9 
 1984	2.07	7.61	15.57	15.20	12.51	-19.52	3.95	15.6	3.6	5.6 
 1985	30.70	56.28	8.68	30.66	12.91	5.26	3.80	56.3	17.6	24.1 
 1986	7.15	69.44	21.96	24.18	11.61	20.82	1.10	69.4	17.1	25.9 
 1987	-7.31	24.56	8.18	-3.18	5.73	21.72	4.43	24.6	5.0	8.3 
 1988	29.20	28.25	18.66	9.15	5.63	-15.59	4.42	29.2	9.2	12.6 
 1989	12.14	10.50	5.89	17.93	8.42	-3.23	4.65	17.9	6.7	8.6 
 1990	-21.98	-23.41	5.99	5.78	8.62	-1.86	6.11	8.6	-7.1	-4.5 
 1991	41.37	12.20	15.67	17.43	10.41	-10.43	3.06	41.4	9.1	14.4 
 1992	28.80	-12.04	7.29	7.40	6.47	-6.12	2.90	28.8	0.6	5.3 
 1993	23.52	32.54	15.47	16.79	6.41	17.21	2.75	32.5	15.9	18.7 
 1994	-1.73	7.81	2.99	-7.03	-0.58	-2.56	2.67	7.8	-1.8	-0.2 
 1995	25.51	11.30	0.60	30.11	12.11	0.58	2.54	30.1	10.0	13.4 
 1996	21.12	6.11	3.89	-1.25	4.39	-4.97	3.32	21.1	1.6	4.9 
 1997	31.50	1.83	7.78	13.90	6.39	-21.72	1.70	31.5	1.6	6.6 
 1998	-6.71	19.98	2.59	13.05	7.36	-1.22	1.61	20.0	3.0	5.8 
 1999	3.11	26.96	7.68	-8.66	1.85	0.45	2.68	27.0	0.9	5.2 
 2000	21.88	-14.23	4.59	19.72	8.83	-5.82	3.39	21.9	2.6	5.8 
 2001	13.70	-22.25	7.40	4.31	7.80	0.44	1.55	13.7	-0.5	1.9 
 2002	-14.20	-15.70	16.61	16.67	8.02	24.96	2.38	25.0	2.3	6.1 
 2003	37.19	38.61	8.00	2.68	2.38	19.12	1.88	38.6	13.9	18.0 
 2004	23.55	20.25	8.27	7.12	1.03	4.48	3.26	23.6	8.2	10.8 
 2005	6.07	13.34	2.59	6.61	1.77	17.76	3.42	17.8	6.1	8.0 
 2006	19.24	26.18	0.43	1.74	3.77	21.95	2.54	26.2	9.4	12.2 
 2007	-7.07	10.99	11.59	9.24	7.89	30.57	4.08	30.6	6.5	10.5 
 2008	-32.05	-41.62	-2.85	22.52	6.68	4.96	0.09	22.5	-13.0	-7.1 
 2009	30.34	28.17	10.80	-12.05	1.44	23.99	2.72	30.3	10.5	13.8 
 2010	24.82	8.54	6.17	8.93	2.64	29.27	1.50	29.3	10.2	13.4 
 2011	-4.16	-12.53	13.24	29.28	2.26	9.57	2.96	29.3	1.7	6.3 
 2012	18.56	18.83	6.78	3.47	0.69	6.60	1.74	18.8	7.2	9.2 
 2013	36.41	21.84	-8.92	-13.03	-0.10	-28.33	1.50	36.4	-5.7	1.3 
 2014	10.39	-5.66	3.83	25.27	0.71	-2.19	0.80	25.3	1.4	5.4 
 Avg	15.3	11.3	7.2	8.9	6.7	10.7	4.2	33.9	5.2	10.0 
 Stdev	20.4	22.1	6.9	12.1	4.6	29.1	3.1	21.1	6.9	7.4 
 CAGR	13.5	9.1	7.0	8.2	6.6	6.8	4.1	32.2	5.0	9.8

Despite quite a steep rise in short term yields, long dated treasury bond losses were relatively mild.

The data also includes inflation figures, together with the best assets gain each year, the average of the other assets excluding that best asset, and the average of all of the assets.

After discounting the best, which was often a reasonably good gain, the average of the rest typically paced/exceeded inflation. i.e. you can profit take out of the best asset each year - and in the above case a 6 way split 16.7% allocation each, with the best asset each year averaging 34% gain = 5.7% relative to the total portfolio value (34% gain x 16.7% allocation)

Look down the average of all assets column and rarely did a losing year occur and when one did typically losses were recovered relatively quickly (or preceded by a previous good year gain).

Profit taking out of the best, rebalancing towards equal weighting once/year - typically has you adding low (cost averaging).

You've been saying long dated treasuries were 'bad' for a few years now, yet last year they were the best performing asset out of those assets, providing a +25% gain. They were also the best in 2011. Yes that's indicative that prices are potentially high - being the biggest gainer across 2014, but more generally even at low yields long dated treasuries still have a place in a diversified portfolio rather than being totally excluded.

If one asset is weighted 17% and declines -30% then the portfolio wide impact is a -5% hit, which could even be counterbalanced by portfolio wide interest/dividends alone. And if one asset is down -30% but the total portfolio value remains unchanged (or even rises), then that's beneficial as in effect for no loss you're managing to buy more of (cost average into) a asset that is 30% cheaper than a year earlier.

The above asset allocation is almost stable enough to potentially be designated as a 'cash' type holding. Or possibly even safer - as having all of 'cash' in short term treasury bonds leaves you in dire straits should anything adverse occur to such bonds.