What's in your BORING portfolio?

will888 wrote: ↑ What's the frequency for market meltdowns? How long do they typically last? Do you believe that there will be a recovery each time? During a recovery period, do you have mitigation to limit selling at a loss? How does your investments support that mitigating strategy?

I have a very deep understanding of market history. But that does not make me qualified to know what will happen in the future. You don't know the future either, respectfully.

Again, I recommend you read Black Swan book which I had mentioned earlier. It'll perhaps help you realize that having an allocation in safe assets are necessary

Oh, one more thing: bonds help when there is deflation. Now you may say that there is bound to be more inflation and not deflation, but how do you know for SURE? Do you have the humility to admit that you don't know what you don't know?

will888 wrote: ↑ Do nothing, show no emotions, take no action. Ask yourself does it make sense to limit future gains in exchange for reduced portfolio beta. Lower beta on its own doesn't do a thing to improve returns. Again unless your are willing to sell bonds to buy more VEQT in a market rout there's not that much difference in having 75% or 100% VEQT. Alternatively buy an asset allocation ETF so that the fund will rebalance for you. In the meantime, the longer you hold VEQT, the more past unrealized gains will help to temper future unrealized losses. Until yields recover to a reasonable level the equity market will continue to grind upwards. In 5 years time you will be protected against sequence of return risk.

Having lower volatility means lower risk, by definition.

Because I don't know how I'll handle a severe downturn that lasts many years, I'd rather hold some bonds even though I fully realize that holding bonds is not optimal from a pure returns perspective. Yet I also know that holding bonds is perfectly fine from a risk-adjusted risk-return spectrum.

75% Equity / 25% bonds is definitely not for you based on what you just mentioned. But it's a good enough portfolio for me.

Here is the thing though: I have arranged my finances such that a 7% average return is sufficient for my needs. Why do you want a return that's more than that?

TuxedoBlack wrote: ↑Here is the thing though: I have arranged my finances such that a 7% average return is sufficient for my needs. Why do you want a return that's more than that?

Aha, now I see where we view bonds differently. To me, an ETF whose price is guaranteed to fall when interest rates rise, is an inferior product at times when interest rates “have nowhere to go but up”. Yes, I know, there’s no guarantee they will (have witnessed it since 2015 ) And yet I hate the idea of buying something that’s supposed to protect the portfolio - yet it ends up going down instead..

I kept choosing HISA, GICs and individual bonds for their true FI value, which I don’t think bonds ETFs are. Still happy that I didn’t buy TLT last summer for.. was it $168 at the time? Dropped below $140, while yielding ~1.5%. So much for the quality of treasuries - and the rates didn’t even change yet, just are expected to “maybe rise sooner”! VAB/ZAG and other aggregates did better - but I’m pretty sure all underperformed alternative HISAs..

I think the main reason I haven’t dumped BHK yet is because “there’s nothing I want to buy” ATM..

TuxedoBlack wrote: ↑ Having 6 months in emergency cash is an amazing goal to have!

This means that you don't need as much in bonds, and I commend you for getting to 6 months.

Never understood this 6 month emergency cash, why can't you be fully invested and when emergency happens get money from heloc or margin account?

TuxedoBlack wrote: ↑ I have a very deep understanding of market history. But that does not make me qualified to know what will happen in the future. You don't know the future either, respectfully.

Again, I recommend you read Black Swan book which I had mentioned earlier. It'll perhaps help you realize that having an allocation in safe assets are necessary

Oh, one more thing: bonds help when there is deflation. Now you may say that there is bound to be more inflation and not deflation, but how do you know for SURE? Do you have the humility to admit that you don't know what you don't know?

I have personal experience of the US/CAN market from just before 2000 to present. I profess that none of this knowledge is directly applicable to future markets as the driver for the next bear market will have unique characteristics, something we have never seen before. Bear markets are part of the mean reversion process. I am an investor because I believe in the market to provide me with positive average annual gains net of inflation. If I did not believe in this thesis, then all my money would remain at EQ bank earning 1.25%. Unfortunately, I cannot do that as much of my future income needs have yet to be earned.

dpwr wrote: ↑ Never understood this 6 month emergency cash, why can't you be fully invested and when emergency happens get money from heloc or margin account?

When your back is against the wall and you have no clue how long the situation will last, you don't go borrowing money with no means of paying it back. By definition if you are seeking emergency cash, you have no means to pay for basic needs let alone servicing additional loans.

will888 wrote: ↑ When your back is against the wall and you have no clue how long the situation will last, you don't go borrowing money with no means of paying it back. By definition if you are seeking emergency cash, you have no means to pay for basic needs let alone servicing additional loans.

But your emergency cash can be burning a whole in your pocket, that $50gs can be earning you money every month, and when you need it, you can sell the stock (yes markets can go down, but they can go up as well and your 50gs will be worth 100$gs over 10 years ...

dpwr wrote: ↑ Never understood this 6 month emergency cash, why can't you be fully invested and when emergency happens get money from heloc or margin account?

Don't understand margin account, so no comment

In terms of HELOC, my thinking is let's say if recession happens and we lost income, then we have to pull money from HELOC, it has a few drawbacks in my opinion
1: you need pay back HELOC regardless minimum payment or more, but at the moment when you borrow money, you don't have money to pay, which is the reason why you need borrow. This could become a vicious cycle that lead to foreclosure. People could say it will just take a few month to get income back, but how do we know.
2: Bank can always take your credit away when you need money. as people always said, bank give you credit when you don't need it, take away when you need.

In my opinion, HELOC only works for different type of emergency such as you need replace roof but your money is in investment account, so you borrow it and pay it back once you get salary or whatever.

Depending on HELOC when economy is in downturn and hope you can quickly find a way to get out of the wood can be wishful thinking

I am half empty people

will888 wrote: ↑ When your back is against the wall and you have no clue how long the situation will last, you don't go borrowing money with no means of paying it back. By definition if you are seeking emergency cash, you have no means to pay for basic needs let alone servicing additional loans.

^^^ exactly, yet not everyone thinks this way.

some folks will say "I have many years to retirement, I can weather the storm" ... this is a false sense of security

then their are folks at age 55+ with mortgages + HELOC, that may start to panic because they didn't weather the storm, life events happened ... they have no back up, little to zero RRSP/TFSA & start to think ' I wish I could turn back the clock'

then there are the ones today that have new HELOC at a ridiculous low interest, invest in whatever, buying ETF's that believe the future is rosy.

there isn't a 'one for all fit/plan', everyone circumstances are different ... jobs they have, pensions they may or may not have, relationships, children, health & lifestyle ....

smartie wrote: ↑ Don't understand margin account, so no comment

I am half empty people

so this means that you are half full, which is a good thing

This may seem to be off topic, but in light of discussion about boring portfolios, which I understand to be those that don't need to be touched, caressed, or fondled regularly and comments regarding emergency funds, it wouldn't hurt anyone to spend a few minutes pondering one's actions during and after a Carrington Class Solar Superstorm.

On the night of the 28th of August, 1859, skies around the world lit up with spectacular displays of light. In some places the heavens glowed red, as though reflecting a massive wildfire. Elsewhere broad bands of white light were seen dancing across the night sky. For almost a week skies around the world glowed so brightly that it was possible to read a newspaper at midnight. Everywhere, people gathered and gazed upwards, terrified and awestruck in equal measure. The vast majority had no idea what they were witnessing, and could only assume that it was a portent of the end of the world.

The video below is the most matter of fact description I've heard, of a Carrington Class event, laying out what will happen if jurisdictions are prepared, and what happens if they aren't prepared. The sun will strike again with this magnitude, and in our direction, just hope it isn't on our watch.

freilona wrote: ↑ Aha, now I see where we view bonds differently. To me, an ETF whose price is guaranteed to fall when interest rates rise, is an inferior product at times when interest rates “have nowhere to go but up”. Yes, I know, there’s no guarantee they will (have witnessed it since 2015 ) And yet I hate the idea of buying something that’s supposed to protect the portfolio - yet it ends up going down instead..

I kept choosing HISA, GICs and individual bonds for their true FI value, which I don’t think bonds ETFs are. Still happy that I didn’t buy TLT last summer for.. was it $168 at the time? Dropped below $140, while yielding ~1.5%. So much for the quality of treasuries - and the rates didn’t even change yet, just are expected to “maybe rise sooner”! VAB/ZAG and other aggregates did better - but I’m pretty sure all underperformed alternative HISAs..

I think the main reason I haven’t dumped BHK yet is because “there’s nothing I want to buy” ATM..

+1! With bond yields at zero and only prospects it going up, investments such as VAB only serve to reduce overall portfolio beta. As a source of regular income bond ETFs don't cut it. The distribution is low. Selling shares to fund income would crystalize losses. My views would change in the future if yields reach higher level. For now, I agree with Warren Buffet, bonds are a return free risk.

dpwr wrote: ↑ But your emergency cash can be burning a whole in your pocket, that $50gs can be earning you money every month, and when you need it, you can sell the stock (yes markets can go down, but they can go up as well and your 50gs will be worth 100$gs over 10 years ...

In a good decade, $50,000 will become $100,000. In a bad decade $50,000 might still be worth $50,000 if you are lucky. In between the $50,000 could be worth $20,000. I would rather play it super safe with emergency funds. I am already taking sufficient risk by going 100% equities with the invested funds.

BTW, have you ever faced an unforeseen circumstance requiring funds that is not readily available to you?

Quentin5 wrote: ↑ Can you elaborate on this?

He is referring to epistemic uncertainty.

TuxedoBlack wrote: ↑ Having lower volatility means lower risk, by definition.

Because I don't know how I'll handle a severe downturn that lasts many years, I'd rather hold some bonds even though I fully realize that holding bonds is not optimal from a pure returns perspective. Yet I also know that holding bonds is perfectly fine from a risk-adjusted risk-return spectrum.

75% Equity / 25% bonds is definitely not for you based on what you just mentioned. But it's a good enough portfolio for me.

Here is the thing though: I have arranged my finances such that a 7% average return is sufficient for my needs. Why do you want a return that's more than that?

When interest rates do rise, whenever that may happen, could it make your bond fund go down? The current bonds that the fund is holding would be drop in value as the new higher interest rate bonds are issued for purchase. The new bonds would rise in value and the funds current bonds would fall. I recall reading this from google.

cheapmeister wrote: ↑ When interest rates do rise, whenever that may happen, could it make your bond fund go down? The current bonds that the fund is holding would be drop in value as the new higher interest rate bonds are issued for purchase. The new bonds would rise in value and the funds current bonds would fall. I recall reading this from google.

Correct. This site provide a basic description of the mechanics involved.

https://www.etf.com/etf-education-cente ... -etfs-work

freilona wrote: ↑ Aha, now I see where we view bonds differently. To me, an ETF whose price is guaranteed to fall when interest rates rise, is an inferior product at times when interest rates “have nowhere to go but up”. Yes, I know, there’s no guarantee they will (have witnessed it since 2015 ) And yet I hate the idea of buying something that’s supposed to protect the portfolio - yet it ends up going down instead..

I kept choosing HISA, GICs and individual bonds for their true FI value, which I don’t think bonds ETFs are. Still happy that I didn’t buy TLT last summer for.. was it $168 at the time? Dropped below $140, while yielding ~1.5%. So much for the quality of treasuries - and the rates didn’t even change yet, just are expected to “maybe rise sooner”! VAB/ZAG and other aggregates did better - but I’m pretty sure all underperformed alternative HISAs..

I think the main reason I haven’t dumped BHK yet is because “there’s nothing I want to buy” ATM..

With all due respect, how do you know for sure where interest rates are headed?

After having read 100s of books, spending thousands of hours, and authoring a book, I can unequivocally say that I do not know what the markets will do. And by extension, I do not know where the interest rates are going. They could go up, they could go down, or they could remain the same.

What if there is deflation? Having VAB (or VSB, ZAG, what have you) would certainly help during that time.

I will say that I wholeheartedly agree with your thinking and understanding: when interest rates go up, bond prices will go down. I get this (I majored in economics). But I will again reiterate that I do not know where the interest rates are going for SURE.

How often have you guys gone through these unforeseen circumstances where you needed 6 months emergency cash? Or what are these events exactly?

I had a very poor childhood so I know how it feels to have no money and still make do. I would just downgrade all my expenses instead. I don't know what I would be facing where liquid cash would save me in those dire situations. I mean, my job insurance covers certain things as well. And finding another job isn't an issue in my field.

Quentin5 wrote: ↑ Can you elaborate on this?

See, I openly admit that there are gaps in my knowledge and understanding of the world, despite me having spent a ton of time researching, thinking, analyzing, and writing about personal finance.

The more I know, the more I realize that there is so much I don't know.

Therefore, I use 25% in Bonds in my RRSP. To hedge against the unkown. To help me survive in case of a black swan event.