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Brexit - implications to personal finance 

findependent
Posts: 53

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7/15/2016
findependent
Posts: 53
Thanks njhowie

Always insightful. I appreciate the simple explanation and now I get it

I just sold my Edv positions, it dropped nearly 3 percent in a day yesterday....

Timing is everything
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njhowie
Posts: 77

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7/15/2016
njhowie
Posts: 77
Your EDV position works so long as interest rates go/stay lower. Should rates go up, EDV will drop. You need to remember that bond prices move inversely to interest rates. The only way EDV spikes up with the market tanking is if the response is that interest rates move lower as a result. If the market tanking is triggered by interest rates increasing, then EDV goes lower. So, just be aware of the inverse relationship to interest rates and that it is the only thing driving the price of EDV. You should note that it does not necessarily move in the opposite direction of the market - since brexit the US market is up something like 7%. As it applies to Dalio's suggestion of keeping a hefty portion in intermediate/long-term treasuries, if interest rates go up, the value of those treasuries tank. So, I have to believe if he's recommending that today, he has to be of the mindset it's being done to hold them until maturity for the security/stability of the interest payments and protection of the principal.

As far as CDs, the rates are terrible these days, but still better than the equivalent maturity treasury. Today, to get 1% you have to go out to 2 year maturity. For 2% you now have to go out to 9 or 10 years (10 year treasury this morning is about 1.5%). I buy/hold the CDs in my brokerage account - you may be able to find somewhat better rates going directly to some of the online banks, but if you walk into your local bank the rates are likely much lower. I've laddered my CDs out to about 5 years (I hold about 20 individual CDs at this time - but no longer rolling them over when they mature because the rates have gotten too low. My longest maturity ones purchased last year are trading in the market well above face value (I could actually sell today for face value + over 1 years worth of interest payments...which is mind boggling) - this is the same as what you see with EDV and the price of treasuries as well as most corporate bonds.
edited by njhowie on 7/15/2016
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findependent
Posts: 53

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7/13/2016
findependent
Posts: 53
NJhowie, thanks for your thoughts on this, I hear you. but I don't totally understand as I am not that deep on yields etc.

Here is my take - what about if you could trade in and out of long term teresuriues with EDV etf. Note, EDV is up 3.21% to the close yesterday since brexit.

I am definitely not buying and holding EDV till the maturity of the bonds. I am simply attemptig to ride it as the fundamentals of the equity market deteriorate. In my rudimentary analysis it seems to move in the opposite direction of the market. If the market tanks I think this will spike up

what kind of yield are you seeing with CDs. I have been in CDs since 2002 ING.. this were the days = )
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njhowie
Posts: 77

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7/13/2016
njhowie
Posts: 77
Thanks for the link.

This raised my eyebrows:
“Then you need long-term government bonds. 15% in intermediate term (7- to 10-year Treasuries) and 40% in long-term bonds [20- to 25-year Treasuries].”

The date on that article is November 2014. I'm not sure what the interest rate situation was then, but certainly not as bad as today. I don't think it is very wise to lock up over 50% of your portfolio in government treasuries of such long duration with interest rates where they are today. I personally like CDs better than treasuries. The rates are higher than the equivalent maturity treasuries and both the principal and interest is FDIC guaranteed, so it is nearly equivalent as far as security with better returns.

Anyhow, it's an interesting article.
edited by njhowie on 7/13/2016
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findependent
Posts: 53

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7/11/2016
findependent
Posts: 53
NJhowie! It's been a long time, great to hear from you! Your advice/responses have helped me throughout the years (back in the day at nwIQ)

Agreed, the market makes zero sense currently. Scary. One thing I do know is that the markets hate uncertainty.

One thing worth noting is that Ray Dalio has revealed his All Weather allocation. (See link) Interestingly, it is weighted more toward bonds and less towards equities. This allocation has delivered a nice consistent return when back tested. Check out the link below

http://yahoofinance.tumblr.com/post/102956492899/tony-robbins-ray-dalios-all-weather-portfolio
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njhowie
Posts: 77

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7/11/2016
njhowie
Posts: 77
findependent, the market is totally messed up - there is no such thing as logic any longer. it "feels" very unsettling, because the valuations make almost no sense at all. because interest rates are so low, you have yield chasers out there who just buy anything with a reasonable dividend yield. they aren't looking at earnings, if the dividends are sustainable, or anything other than what the yield is. large cap companies are sporting valuations much higher than when they posted higher earnings in the past. now, they just increase their dividend, even if it means borrowing money, and this provides support under the share price. it is really mind blowing what is going on.

personally, we've reduced our market exposure significantly over the past several months. we've done extremely well over the past 7 years and are very willing to accept lower returns for a while knowing that our profits are secure.

being able to sleep well at night has lots of value in itself.

FYI - The Big Short is now available on Netflix.
edited by njhowie on 7/11/2016
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findependent
Posts: 53

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7/2/2016
findependent
Posts: 53
Did you notice in the days post Brexit. There was a drop in equities then a rebound... but the rebound in equities is being outpaced by the run-up in long term treasuries... more money flowing into bonds....

Caution BEAR market ahead
edited by findependent on 7/2/2016
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licid9
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7/1/2016
licid9
Posts: 45
It'll be interesting to see where it goes from here.
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findependent
Posts: 53

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6/26/2016
findependent
Posts: 53
I think the BRExit is the beginning of the slippery slope.
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findependent
Posts: 53

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6/26/2016
findependent
Posts: 53
https://www.dropbox.com/s/ywvwdayud01828d/Photo%20Jun%2026%2C%2012%2053%2050%20AM.png?dl=0
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