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Here's a statement of the obvious: The opinions expressed here are those of the participants, not those of the Mutual Fund Observer. We cannot vouch for the accuracy or appropriateness of any of it, though we do encourage civility and good humor.
  • M* JR on Rolling Returns
    The average business cycle is about 4 years; not strangely, the US Presidential cycle is also similar. So, I like to look at 3- or 5- year rolling returns, where available.
    Portfolio Visualizer has a Rolling Return tab that has built-in 3- and 5- year Rolling Returns. It isn't customizable.
    StockCharts can be fooled into providing Rolling Returns using the ROC (n) feature. It gives %change over n periods, so, in Daily charts, use 780 days for 3-yr and 1,300 for 5-yr.
    yogibearbull yogibearbull in Other Investing
  • What is happening in healthcare?
    First, apologies as I am not an 'active' investor. I tend to set it and forget it, so I'm usually late to the party.
    I have been noticing over the last few years that investing in healthcare (for example PRHSX T Rowe Price Health Sciences, which we are in) has really sucked (relative to the market as a whole). From 2000 to mid-2015 it consistently outperformed the s&p500. That all turned around in mid-2015 and it has been underperforming ever since. I've been patiently waiting for the worm to turn. (Did some seismic event happen in mid-2015 to damage this whole sector?)
    Lately I've noticed FSMEX Fidelity Select Med Tech & Devices, a real world-beater from 2000 to late-2021 has gotten hit. Flat in 2022 relative to the market, and in a real nosedive in 2023.
    What is going on in this sector, and is it something that will eventually reverse?
    Thanks for your thoughts on this.
    randynevin randynevin in Fund Discussions
  • Serious question about bond funds
    @hank — The way I am addressing the potential for more rate increases is to ladder my CDs and Treasuries. I’ve got CDs and Treasuries maturing roughly every three months on the short end, and every 6-12 months on the long end. My longest term CD is five years, but I’m considering going out longer if Treasury yields top 5% in the 5, 7, 10 and 20 year ranges. I am more willing to buy longer term Treasuries than CDs because of greater ease in selling.
    When I started building ladders earlier this year, I bought some callable CDs at higher yields, not realizing the distinction. All of my more recent CDs are non-callable. However, only one of my earlier CDs has been called in, and I was able to reinvest at a higher rate.
    I’ve also sold some of my intermediate bond funds and reinvested in an ultrashort fund (FCNVX) and floating rate ETF (USFR). I haven’t sold all of my intermediate and multisector bond funds because they are now paying much higher yields and will eventually rebound when interest rates stabilize or drop.
    Tarwheel in Fund Discussions
  • Serious question about bond funds
    One needs to assess the situation carefully:
    1. Returns after the annual inflation. This year is about 3-4%.
    2. Returns after federal and state tax. These instruments are tax as ordinary income on federal level. T bills are state tax exempt.
    If inflation stays higher than the historical 2% for several years, that will erode purchasing power from the 5% yield. The 4% withdrawal rate May becomes not feasible. This is tough time for income investors including myself.
    Sven in Fund Discussions
  • Serious question about bond funds
    Guys - You’ve almost convinced me to sell everything and move it all into that “guaranteed insured rate of 5+% for the next … 5 years.”
    Never invested that way before, having grown up believing a broadly diversified portfolio is the way to go. Even when money market funds paid 15% in the 80s I (perhaps stupidly) remained mostly in globally diversified equities. (Maybe “brainwashed” watching Rukeyser every Friday night.)
    My question - If the rate available on this product (5-year CD) rises to 7-8% in a year or two, could I cash out that 5-year CD early and buy a new one at the 7-8% rate - or move it into a money market fund at a better rate than the old CD?
    hank in Fund Discussions
  • M* JR on Rolling Returns
    M* JR compares rolling returns (5- , 10-, 20- yr) and annual returns for 01/1926-09/2023. An obvious conclusion is that longer rolling-return periods smooth the returns and reveal the underlying trends. Historical data (for almost 97 years!) are also notable.
    At one time, M* Charts used to provide rolling return option. May be that should be restored.
    https://www.morningstar.com/stocks/how-time-horizon-affects-odds-equity-investing
    yogibearbull yogibearbull in Other Investing
  • Pretty Funny- Matt Levine: Bitcoin hitman user experience
    Matt's column this morning is just great- I had to share it.
    There are three classic problems that you might encounter if you try to use Bitcoin to pay for goods and services. The first problem is that your Bitcoins might go astray: Bitcoin transactions are irreversible and involve sending money to long complicated addresses, and people are constantly trying to steal them. So if you send someone Bitcoin to pay for something, there will probably be a typo in the address and the person won’t get it and you’ll have to send it again and your first payment will just be permanently lost.
    The second problem is that Bitcoin is very volatile, and even people who accept payment in Bitcoin tend not to denominate it in Bitcoin. So if you send someone $100 worth of Bitcoin to buy a $100 thing, the price of Bitcoin might drop 10% while you’re sending it, and then they’ll say “you only sent me $90” and you’ll have to top them up with more Bitcoin.
    The third classic problem is that, if you are using Bitcoin to pay for goods and services, there is a good chance that you are paying for something illegal, and Bitcoin payments are traceable. So if you send someone $16,000 worth of Bitcoin to buy a $16,000 thing, (1) some of your money will go missing in transit, (2) the Bitcoins you send won’t be worth $16,000 and you’ll have to send some more, and (3) the $16,000 thing was a murder and now you are in prison.
    James Wan knows these problems well:
    On April 18, 2022, while in the Northern District of Georgia, Wan accessed a dark web marketplace from his cellular telephone and submitted an order to have a hitman murder his girlfriend. The order included the victim’s name, address, Facebook account, license plate, and car description. In the order, Wan stated: “Can take wallet phone and car. Shoot and go. Or take car.” Wan then electronically transferred a 50% downpayment of approximately $8,000 worth of Bitcoin to the dark web marketplace.
    Two days later, Wan messaged the marketplace’s administrator, stating that the transferred Bitcoin did not show up in his escrow account on the site. The next day, the marketplace administrator asked Wan for the Bitcoin address to which Wan had sent the payment. In response, Wan identified the Bitcoin wallet address and provided a screenshot of the transaction. When the administrator said that the address Wan provided was not in their system, Wan replied, “Damn. I guess I lost $8k. I’m sending $8k to escrow now.” Wan then electronically transferred an additional Bitcoin payment worth approximately $8,000 to the marketplace. …
    About a week later, on April 29, 2022, Wan electronically transferred another payment of approximately $8,000 worth of Bitcoin to the dark web marketplace to ensure his escrow account contained the total required to complete the order. ...
    On May 10, 2022, after the value of Bitcoin dropped, Wan electronically transferred another payment of approximately $1,200 worth of Bitcoin to the marketplace to ensure his escrow account still contained the total required to complete the order.
    Wan pleaded guilty this week. “After speaking with FBI agents, Wan canceled the order on the dark web marketplace,” terrific. I wonder how many murder-for-hire contracts had to be repriced when crypto prices collapsed last year. Not zero!
    And yet another winner:
    Elsewhere in crypto crime
    I suppose if you are a law enforcement officer and a guy calls 911 and says “someone stole my Bitcoins,” you could just go to his house and arrest him? Or at least show up and ask him questions like “where did you last see your Bitcoins?” and “do you have any enemies?” and “is there any chance you acquired these Bitcoins by hacking a dark-web drug marketplace?”
    Here is a CNBC story about a guy named Jimmy Zhong, who called 911 because someone stole his Bitcoins, and the cops showed up and were like “okay but who did you steal the Bitcoins from,” and he was like “oh Silk Road” and they arrested him. No, I’m kidding, I’m condensing the timeline, and he didn’t actually say that, but that is where he stole the Bitcoins from, and they did ultimately arrest him for it. The scorecard here is:
    The guy who stole hundreds of thousands of dollars’ worth of Zhong’s Bitcoins was never caught.
    Zhong was sentenced to a year in prison for stealing billions of dollars’ worth of Silk Road’s Bitcoins.
    The guy who ran Silk Road was sentenced to life in prison, mostly for running a marketplace selling drugs for Bitcoins though also for trying to use Bitcoins to hire hitmen to do some murders.
    The lesson might be that if you are going to do crypto crime, stealing from people who steal from people who run crypto drug marketplaces is a better bet than running the marketplaces yourself. This is not any sort of advice at all.
    Three other funny points from the CNBC story. One is that US law enforcement seized the Bitcoins that Zhong stole from Silk Road (except for the ones that were stolen from him) and very cleverly offered to return them to their rightful owners, opening “a process that allowed victims of the hack to apply to get their bitcoin back.” Again this is not legal advice, but do not fill out that application! Nobody did:
    Nobody came forward to claim the loot. That’s not surprising, given that users of Silk Road in 2012 were largely drug dealers and their customers.
    Two, the government then “sold off the stolen bitcoin and will keep the proceeds.” Zhong’s lawyers make the sensible point that, by stealing these Bitcoins from Silk Road and handing them over to the government years later, Zhong actually made the government a lot of money:
    “If Jimmy had not stolen the coins and the government had in fact seized them from [Silk Road operator Ross Ulbricht] they would have sold them two years later in 2014 as they did with other coins.”
    At that point, the government “would have gotten $320 a coin or made somewhere about $14 million,” Bachner said. “Now, as a result of Jimmy having them, the government has gotten a $3 billion profit.”
    Over the last few years, a lot of people have made arguments with the essential form “I am an investing genius because I held Bitcoin from 2014 through 2021,” but this particular one struck me as novel.
    Three, here’s how BlockTrace cyberintelligence investigator Shaun MaGruder knew that Zhong was the hacker:
    MaGruder said Zhong’s level of sophistication was apparent.
    “He was navigating that keyboard like I’ve never seen someone navigate a keyboard,” MaGruder said. “He didn’t have to use a mouse because he knew all the hotkeys.”
    Watch out, investment banking analysts.
    Old_Joe Old_Joe in Other Investing
  • Serious question about bond funds
    @Tarwheel
    I asked similar questions on various threads on this site for a few months with varying results.
    What I learned: Lots of investors just ain't interested in boring, guaranteed, insured rates of 5+% for the next 3 months to 5 years.
    What I already knew: I am.
    FWIW, I sold all of my bond funds (and all of the bond funds of other accounts I manage for friends and relatives) many months ago and now have CD ladders that guarantee as much or more TR than any of us either expected or hoped for LT from bond funds. We all still hold stock portfolios as well with some holding a sliver of bonds via Allocation funds.
    When I was young, a favorite saying and/or dream was to have enough money to live off the interest. For many who have enough of a nest egg, that opportunity has been years in the making but is now smack dap in front of us. It won't be there forever. Act accordingly.
    stillers stillers in Fund Discussions
  • JP Morgan: do yourself a favor, don't overthink this one
    It would be interesting to back test his allocation for the past 10 years.
    I'm guessing it's a little more diversified than a global stock fund and local bond fund.
    WABAC WABAC in Fund Discussions
  • JP Morgan: do yourself a favor, don't overthink this one
    Loeys is avoiding government bond, high yield, and oversea (currency) bonds while he is okay with foreign stocks. Also he is avoiding commodity and tech sectors and they can be added when necessary. So there is some level of customization in his asset allocation as oppose to those allocation used in target date funds.
    It would be interesting to back test his allocation for the past 10 years.
    Sven in Fund Discussions
  • Serious question about bond funds
    Funds that invest in VARIABLE rate securities tend to be less volatile (because of smaller duration) than those that invest in similar quality fixed-rate securities. Of course, they work the best in steady or rising rate environment.
    This year, junky FR/BL have done the best. The Treasury FRN USFR is doing well too.
    Treasury ZEROS may work for some who want built-in reinvestments and have some goals for specific years. There are lots of them available in the secondary market. Treasury strips are made out of regular Treasuries by separating the principal and interest payments. So, a 30-yr Treasury may become 1 huge "principal" piece and 30 smaller "interest" pieces. Because of this, Treasury ZEROs of variety of maturities are available. Yes, they are volatile but will pay 100% at maturity. Example - $100 10-yr 5% ZERO can be bought for $61.39 only; it will be volatile, but will pay $100 in 10-yrs. It may be difficult to buy CDs beyond 7-10 yrs.
    yogibearbull yogibearbull in Fund Discussions
  • Serious question about bond funds
    "I’ve never bought a bond directly (aside from some savings bonds years ago). But I do know that 0-coupon bonds are extremely volatile."
    I don't think I'd ever buy a zero-coupon bond or fund with a VARIABLE rate. Or an NAV which moves up and down. Kinda defeats the purpose. I bought a 10-year zero lotsa years ago. Predictable, steady. No surprises. The income every year was counted as taxable, though you see nothing "real" for 10 years.
    Crash Crash in Fund Discussions
  • Serious question about bond funds
    BTW, the expected yield on the 20-year Treasury bond auction today is 5.156%
    Many investors think that the 20-year is a good buy now. 20 years of 5% interest will work for many folks. But once interest rates start declining you will make a nice CG on the bonds you own. Any kind of market timing is difficult. If one doesn't hit the highest yield, 5% is still great and most likely will be great a few years from now.
    Gary1952 in Fund Discussions
  • Serious question about bond funds
    Tarwheel: Your problem is one that most investors suffer through. If it isn't bonds, it's stocks or something else. We always worry about what is going to happen in the future. You must set your goals and allocations and stick to them, unless you are a trader. I don't like the way the market is going either, but I am sticking to my plan. I'm not smart enough to figure out the future. I don't remember if you said that you were married or not, but in my case, everything is set up to make it easier for my wife if I pass. (I am much older than you.) I once owned some treasuries (thru VG), and then was worried what would happen if I passed before they matured. The proceeds would be placed into our settlement fund and she would have to decide what to do with the cash. They have since matured and the proceeds have been reinvested, but I will not invest in them again for the for this reason. I want to leave her a portfolio that runs on auto-pilot for her remaining years.
    Now for bonds. I use mostly balanced funds. Of course they are struggling now since both stocks and bonds are struggling. I also hold two bond funds, both high-yield. You know they are not doing so well, but I am sticking with them. Each month the dividends buy more shares at a lower price, and I believe that later next year interest rates are going to start going down and the NAV will start going up. Don't ask me why I believe that, because I don't know. I just believe that in the long run the US market will be alright.
    My best advise for you is to delete my post and do what you thing is right for you and your family.
    Just another point of view.
    hondo in Fund Discussions
  • corp taxes
    from the great John Waggoner
    The S&P500 quarterly income tax rate for Q2 2023 was 18.81%, down from the Q1 2023 20.20% rate, down from the Q2 2022 20.05%, significantly lower than the pre-Tax Cuts and Jobs Act of 2017's Q2 2013 29.53% (10 years ago), and 48% lower than the Q2 1998 35.84% rate (25 years ago).
    Good thing they're passing those savings on to their customers!
    davidrmoran davidrmoran in Other Investing
  • Serious question about bond funds
    @Yogibearbull - Thanks for clarifying. Guess I’ll have to sell it than! For years I’ve been under the false impression it was a bond fund. Actually, not knowing what I’m doing sometimes works better than when I know what I’m doing.
    Yes, M* shows CVSIX to have only a small weighting in bonds. Looks like 15-20% on their pie chart. However, Lipper puts the bond holdings somewhat higher at 46%. Bonds & cash combined come out to 65-70%.
    ALLOCATION (CVSIX)
    Bonds 45.94%
    Stocks 34.79%
    Cash 21.56%
    Other -2.29%
    (Figures from MarketWatch / Lipper)
    hank in Fund Discussions
  • Serious question about bond funds
    I’ve never bought a bond directly (aside from some savings bonds years ago). But I do know that 0-coupon bonds are extremely volatile. American Century had some 0-coupon bond funds back in the 90s. You could choose from a variety of maturity dates. Owned them briefly. One wild ride. True, if you can endure the changes in NAV you’ll get your promised pay out at maturity. Most bond / income funds I’m familiar with pay dividends monthly. Some pay quarterly. So that income would compound depending on when paid.
    @Tarwheel - Sorry. I might have been more tactful in addressing your question.
    One reason bonds are suffering badly is the ongoing dash-to-cash. Where does all that money running into cash originate? From bonds and equities being sold. As with any asset, when there are more sellers than buyers prices fall. Howard Marks speaks at length in “The Most Important Thing” about the investing ”pendulum”. That is: Asset valuations always run to the extreme. I merely suggest that we take that thought into consideration here. Cash is king right now. My only question (borrowed from a popular 70s hit) - ”Will You Still Love Me Tomorrow?”
    hank in Fund Discussions
  • Serious question about bond funds
    I’m not trying to convince anyone to buy CDs and Treasuries, just trying to wrap my head around investing in them. For most of my investing history, cash investments have yielded next to nothing. Treasuries and short term bonds fared little better.
    Many financial planners and experts say you can safely withdraw about 4% a year from a portfolio in retirement. I am unlikely to live 20 or more years, based on my family history, although my wife could. So, if I can buy a 20-year Treasury yielding 5.15%, that will pay more than my income needs for longer than my expected life span, what’s not to like? I have no intention in putting all of my portfolio in Treasuries, just a portion that would make up the long portion of a ladder.
    I’m trying to decide whether to convert more of my bond funds into Treasuries. My bond funds are currently yielding close to 6% but continue to lose value. I know that at some point they will start increasing in value again, and selling now will lock in my losses, so I don’t plan to totally abandon them. But I no longer view them as low-risk investments to anchor my portfolio. I also plan to continue holding 40-60% of my portfolio in stock funds.
    So, if I buy a 20-year Treasury that pays dividends semiannually, is that income compounded, or simply paid out in cash every 6 months? So far, the Treasuries I’ve bought are all zero-coupons that you buy at a discount and mature at full cash value. I haven’t bought any 5-year or longer Treasuries, so I don’t understand if the interest is compounded or simply paid out at regular intervals.
    Tarwheel in Fund Discussions
  • Serious question about bond funds
    2021-23 will go down the history as the WORST period for bonds. Investors and organizations (M*, etc) that have gone exclusively with bond FUNDs only for all times have done poorly. But those who have also used other fixed-income tools have done better - individual Treasuries, CDs, ladders, stable-value (in retirement plans); m-mkt funds too since mid-2022.
    The media is NOW saying that these are the best times to get into bonds. But many investors don't trust that.
    Here is a chart showing Treasuries, core, core-plus and multisector bond funds (beneficiaries of HY); default is 1-yr, but can change timeframes to 2, 3 or other years.
    https://stockcharts.com/h-perf/ui?s=IEF&compare=BND,FBND,PIMIX&id=p36003419830
    yogibearbull yogibearbull in Fund Discussions
  • Serious question about bond funds
    I track a number of bond funds on the soon-to-be extinct M* portfolio manager. These are all funds that were highly ranked with good returns in their various categories. Very few of these funds have achieved 5% returns over the past 15 years, and few hit 3% over the past 10 years. The average returns among various short and intermediate bond funds was 1.1% over 5 years, 1.56% over 10 years, and 3.79% over 15 years. Multi-sector bond funds fared slightly better — 1.3% over 5 years, 2.65% over 10 years, and 5.93% over 15 years. The best performing bond funds were high-yield or junk — 2.78% over 5 years, 3.58% over 10 years, and 7.06% over 15 years.
    Here is my question: why bother with bond funds when you can currently lock CDs and Treasuries with yields above or approaching 5% over the next 3, 5, 10 and 20 years? I have sold a number of bond funds this year to set up CD and Treasury ladders extending out 5 years. However, I still maintain substantial holdings in several bond funds with good long term returns (but terrible returns over the past 5 years), in hopes that their future returns will rebound when yields finally stabilize or fall. Plus, selling now would just lock in my losses.
    I’ll be 70 years old in January. I might not be alive in 10 years, or the time it takes for bond funds to recoup their losses. It’s different with stock funds because it’s not unusual for them to post large gains after bear markets and corrections. But bond funds? Do they ever have big years that make up for the terrible losses they’ve incurred over the past 2-3 years?
    Tarwheel in Fund Discussions