My long Bond portfolio: looking for safety and profit

Discussion in 'Trading' started by JTWilson, Dec 27, 2010.

  1. JTWilson


    I have some cash that I would like to put to work in the market. I don’t need the money for at least 2 years. I don’t like keeping it in my savings account because inflation eats away all the interest earned and then some. I would like to earn ~7% per annum with very little risk. I could tolerate a drawdown in the next two years and it is ok if my strategy won't pan out and I will break even. I absolutely don’t want to lose any money after 2 years.

    I don’t want to trade very often but it is totally fine if I adjust my portfolio let’s say once a month.

    With the above in mind, I have decided to go Long bonds with the following allocations to bond ETFs:

    Long TIP 40%
    Long TLT 30%
    Short TBT 30%

    TIP: iShares Barclays TIPS Bond Fund (ETF) – safety + inflation protection
    TLT: iShares Barclays 20+ Yr Treas.Bond (ETF) – safety of US treasury bonds
    TBT: ProShares UltraShort 20+ Year Trea (ETF) - shorting the double inverse of TLT to benefit from the time decay in this ETF and be Long Bonds at the same time
  2. TBT may not be available to short. many ultra-short ETFs are not easily available. will you short calls instead?
  3. Tsing Tao

    Tsing Tao

    i'm not a bond expert, but going long bonds at this point in time seems rather insane to me. higher rates will be coming, and therefore your selections (other than TIP) will be poor.
  4. Concur. You should be inflation proofing with gold, materials and energy, like the ETF's GLD, XLB, AMLP, XLE, and USO.
  5. JTWilson


    GLD is expensive. I suppose I could add a small amount to my portfolio, but I don't want to be the one holding the bag.

    Japan has not raised rates for decades. US may follow the same path. I feel good about going long bonds because they could skyrocket if there is any geopolitical tension in the next two years. Also I hope I am able to short TBT. TBT decay will allow me to cover some losses in my long bond portfolio if I am somewhat wrong about bond direction.

    I may have to sell TBT calls if the stock is not available.
  6. yeah forreal long bonds is not the right move.
  7. "Geopolitical tension?" There isn't going to BE any. The new war is being made by the global rich on the local poor. They are going to inflate us, the poor, into poverty and perpetual welfare serfdom. Staying at the margin with wise investments may be your only hope. Gold is cheap now. Oil is cheap now. Essential raw materials are cheap now.
  8. Judging by these responses, I think long bonds might actually -be- the right move.

    That said, your portfolio allocation is pretty undiversified and risky. You are taking quite a bit duration, so there's a bit of risk there.

    If you want risk free, buy t-bills. If you want return, you have to step out and put your legs in front of a train track.

    For people that want their principal back in 5 yrs, they just bought 5 yr bonds today and were happy to get 2.15%.

    I think you are probably better off buying a mix of TIPS, 30 yr bonds, some high div yield consumer staples stocks, and some short duration bonds as well (2-3 yr or under), maybe in corporate and/or muni...
  9. JTWilson


    TLT and GLD have been crashed in 2011 .:mad: