Fly On The Wall

This was interesting;

Corey went on to say that this person proposed replacing a traditional bond allocation with cash which Corey thought was a bad idea. There's a thread if you want to read more. Part of Corey's argument in favor of bonds was increased certainty in terms of yield for a longer time period. I am guessing then he meant actual bonds, not bond funds.

That is an interesting point so I will ask if it resonates with you? Does the certainty of a 4.xx% yield justify the volatility? What about the less reliable correlation between stocks and bonds? The question of correlation comes up in the thread too. 

I've mentioned that some higher level of yield would justify the potential volatility and the now unreliable correlation but that 4% isn't that level and neither is 5% (don't read that as 6% being the answer).

We spend an lot of time here trying to solve the dilemma that I believe a traditional bond allocation poses so you can judge for yourself from previous posts but I am many years in on using most of what we look at here so I believe in the approach of some short term plain vanilla, some bond substitutes and some of the more niche income market sectors. 

The person Corey spoke to asked about T-bills and Corey replied "I'm going to ignore, for a moment, that somehow the same allocators will tell you how timing equity markets is impossible are somehow experts in timing duration." We've talked about this a little too. If the mindset is trying to time the bond market or predict what interest rates will do, yes, that is a losing game. It's not realistic to expect to continuously be correct about what interest rates will do. 

But this doesn't have to be about guessing about anything. It took no great skill or cunning to look at 2% yields, or less, for ten year treasuries from a few years ago and simply decide too risky or not enough compensation or however else you might frame it. It's similar to equities in one respect. If you can buy equities after a 30% decline, there's no way to know whether you're buying at the bottom but buying after a 30% decline will work out very well after a few years (maybe sooner) even if it causes regret a few weeks later. I'd argue that 7% for risk free for ten years is probably worth it even if yields kept going up after touching 7%. That is not a prediction, more like hey, if it ever happens...

And maybe because the following is relevant. Each one has 50% in RISR and 50% in the ETF named in the portfolio. RISR is a hedge with a history of high yields and going up when rates have risen.

If you gots to have bond market duration, there might be a way to neutralize some of the volatility. 

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