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A strategy I am trying to refine goes something like this...
Zero Coupon and Extended Duration LT Bond prices (not yield) can be a very choppy ride just like any investment. I use EDV, Vanguard's Extended Duration ETF in combination with other Vanguard ETF Equity holdings together as a "paired investment". I have found this "paired investment" strategy helps with the "ying and the yang" of bonds and equities. I try to re-balance between these "paired investment" as they move 10% opposite one another.
Here's an example over the last three months. If I owned VTI, Vanguard Total Stock and EDV, Vanguard Extended Duration US Treasuries as a "paired investment" there would have been a sell signal on 3/18/2012 because the difference between the two funds reach 10 percent (4% gain by VTI and a 6% loss by EDV).
The idea is to sell a little bit of the winning of one long term holding (in the example 4% of VTI and buy a little bit of the other long term holding (in this case EDV).
The Math on this chart: Feb 3rd you hold $10,000 (143.143 shares) of VTI. On 3/19/2012 VTI gains 4% = $10,400. Feb 3rd you hold $10,000 ( 89.032 shares) of EDV. On 3/39/2012 EDV losses 6% = $9,400.
At Vanguard I have to buy and sell whole shares of ETFs so I would sell 6 shares of VTI (6*72.73=$436.36). I would buy 4 shares of EDV (4*105.63=$422.52). There is a need for a cash position to allow both transaction to happen on the same day.
Comments
A strategy I am trying to refine goes something like this...
Zero Coupon and Extended Duration LT Bond prices (not yield) can be a very choppy ride just like any investment. I use EDV, Vanguard's Extended Duration ETF in combination with other Vanguard ETF Equity holdings together as a "paired investment". I have found this "paired investment" strategy helps with the "ying and the yang" of bonds and equities. I try to re-balance between these "paired investment" as they move 10% opposite one another.
Here's an example over the last three months. If I owned VTI, Vanguard Total Stock and EDV, Vanguard Extended Duration US Treasuries as a "paired investment" there would have been a sell signal on 3/18/2012 because the difference between the two funds reach 10 percent (4% gain by VTI and a 6% loss by EDV).
The idea is to sell a little bit of the winning of one long term holding (in the example 4% of VTI and buy a little bit of the other long term holding (in this case EDV).
The Math on this chart:
Feb 3rd you hold $10,000 (143.143 shares) of VTI. On 3/19/2012 VTI gains 4% = $10,400.
Feb 3rd you hold $10,000 ( 89.032 shares) of EDV. On 3/39/2012 EDV losses 6% = $9,400.
At Vanguard I have to buy and sell whole shares of ETFs so I would sell 6 shares of VTI (6*72.73=$436.36). I would buy 4 shares of EDV (4*105.63=$422.52). There is a need for a cash position to allow both transaction to happen on the same day.