Yearly Archives: 2010

2010-12-08 – Bonds for the Permanent Portfolio

Podcast for December 8th, 2010


What bonds to buy for the Permanent Portfolio.

Why only own 100% US Treasury Bonds?

Why to avoid municipal, corporate, junk and government agency bonds.

Problems with actively managed bond funds.

Individual bonds vs. bond funds.

Performance of bonds in 2008′s market crash.

How to buy bonds.

Recommended bond funds if you can’t buy individual bonds.

Dangers of reaching for yield.

Are bonds too expensive today?

Show Links

iShares Treasury Long Term Bond ETF (Ticker TLT)

Fidelity Treasury Long Term Bond Fund (Ticker FLBIX)

Vanguard Treasury Long Term Bond Fund (Ticker VUSTX)

Treasury Direct

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Chasing Yield with your Cash

Treasury Money Market Fund rates are about 0% today. Many may think this is a reason to chase after some higher yield. My advice: Don’t.
In 2008 when the credit crisis hit it was the higher yielding assets in many money market funds that faced problems. Some of these funds broke the buck. Others dealt out large losses to customers. The slight extra yield being received over the years was met with a quick evaporation of principal in some cases, freezing of redemptions in others, or just a nail biting experience watching it all happen. Was the extra percent a year worth it?

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Your Money and Your Brain – Interview with Jason Zweig

H/T to Tao6 for sending in this video link on human behavior as it relates to investing:

Behavioral economics is a very interesting field. It explores how humans make decisions about money and how their decision making (and emotions) can affect their investing performance. Since I’ve been talking about simplicity in portfolios lately, I’ll just add that having a simple portfolio makes it easier to keep emotions in check. It requires fewer decisions to manage a simpler portfolio and provides less opportunity to make big mistakes.

I have not read Jason Zweig’s book Your Money and Your Brain, but plan to after seeing this interview. Another book on the subject that I did read was Why Smart People Make Big Money Mistakes and How to Correct Them by Gary Belsky & Thomas Gilovich. This book covered many of the same areas and was an excellent primer on recognizing how your behavior and emotions affect your investing decisions. Knowing how humans react to issues surrounding money can better prepare you to deal with your own investing hang-ups and avoid making blunders.

Another book I recommend on seeing how emotions can make very smart people do questionable things with their money is A Mathematician Plays the Stock Market. I wrote about this book in a previous post.

Understanding behavioral economics can really help control investor emotions. I recommend picking up a couple books and reading about it. I certainly have used the knowledge to keep my own investing emotions in check.