ZROZ
PIMCO 25+ Year Zero Coupon U.S. Treasury Index Exchange-Traded Fund
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I’m currently 100% allocated to a long-duration Treasury ETF (ZROZ) going into a late-cycle economy. AMA.
Is Zroz/Tlt the best trade of the decade?
Why long-duration, low-coupon treasury bonds are about to return 25%
Considering Long Duration Bonds as an Opportunity
Should I start buying treasury ETF now?
Need feedback about my strategy to invest in GOVZ/ZROZ?
Need feedback about my strategy to invest in GOVZ/ZROZ?
Buying LEAP on $TLT - An "obvious good idea" at this point??
Anyone loading up on long bonds in anticipation of recession and rate cuts?
Thinking about the 25+ Year Zero Coupon Treasury Index Exchange-Traded Fund (ZROZ)
Best Treasury bond ETF to buy right before the Fed slashes rates from 4.5% to 0%? Why isn't TLT performance inverted vs SHY this year?
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ZROZ will print 2x-illionnaires at this rate.
ZROZ will make some 1.5x-illionnaires in 6 months.
Kind of annoyed we don't have ZROZ in europe.
Yeah i will build a bond position predicting a deflationary recession in the next 6 months. Could even buy ZROZ for max rate sensitivity. Incredible how TLT has lost as much as bitcoin.
That’s what the fixed income dude from the big investment house said this morning on Bloomberg (find the interview and mirror his holdings). Not sure if they are govt or private as I just go with BNDX for non-U.S. bond. I do own a bit of ZROZ in tax-deferred 25+ yr zero-coupon Treasury ETF that are at 5.58% (it’s like sneaking a little habanero in your Taco Bell bond plate though).
Look at ZROZ on the chart https://testfol.io/analysis?s=ajL6osgv4nb. With the obvious exception of when rates were increasing in 2022, the convexity there is much greater than KMLM or DBMF managed futures. You can clearly see the interest rate risk of long dated treasuries.
ZROZ for max sensitivity to the long end. Or just buy a 20y or 30y bond right now. The leverage should be roughly 20*change in yields so if the long end drops 50bps the bond will shoot up in nominal value by 10%. (In reverse it will fall by that much if the yield keeps creeping up) Can ask ai to get pretty precise calculations. Bonds are super mathematical. This 'leverage' is given by the effective duration metric. There is a chance that the long end stays pinned though due to inflation expectations. (Or falls hard if those fall too) but i think it's fair to assume the yield curve won't do anything too crazy.
Most who follow LETFs would not advocate for unhedged buying of TQQQ or any other 3x leveraged ETF. Most instead would combine leveraged ETFs with uncorrelated (not necessarily negatively correlated) assets that limit exposure. For instance, backtesting for this exact same period with 50% TQQQ, 20% ZROZ, 15% GLD, and 15% DBMF, and annual rebalancing, yields leverage tech at 1.5x - 1.8x QQQ that also combines other assets (treasuries, gold, trend following managed futures) that have a positive total return over long periods and allow for rebalancing into these assets during a tech bull run. There will always be risk of treasuries or gold and tech moving in the same direction during a cash (uncorrelated is not negative correlation), but since 2000 strategies such as these backtest with returns approximating 2x QQQ with the same max drawdown, and better sortino and sharpe ratios than QQQ, even when including the dot com bubble and great financial crisis, among other market events. While nobody should hold only TQQQ alone, strategies using TQQQ or leveraged ETFs that, at least on a historical basis, give the holder a good opportunity to beat the benchmark on a longer term basis.
After heavy deliberation, the ideal bond etf allocation only needs IEI and TLT. ZROZ if you really wanna bank on a big crash. The 10-20 year range is kinda just dead weight. 3 year and under is fine too but doesn't really pop off in a recession.
Ok after heavy talk with ai, over a relatively short time horizon of 1-3 years, and assuming a somewhat realictic cutting cycle sequence, TLT should return about 20x the yield delta in long yields and ZROZ about 40x the yield delta in long yields. This cuts both ways though if rates keeo creeping up but for a recession ZROZ could be explosive.
Not sure yet. Asking ai, it seems TLT should grow in cumulative value by about 5% for every 0.5% that yields drop. ZROZ is a higher leverage version of that, doing about 2x that. So the higher yield bonds mainly just protect you in case yields stay high or keep creeping up. Meanwhile ZROZ is a full bet on yields going down.
You’re a pussy if you invest in SSO or ZROZ. Real men DCA in TQQQ. You got soft hands brother
You’re a pussy if you invest in SSO or ZROZ. Real men DCA in TQQQ. You got soft hands brother
I think you’re right…. we’re moving into a geopolitical stagflation regime - which for the credit markets will just hasten defaults - the long game on this is to buy EDV/ZROZ - they are very volatile and are impacted a lot by bond prices (as seen this past week) but in a credit crisis they shoot up a lot.
Is there a good (available in the US) global long term bond fund? Something like EDV or ZROZ but global.
>$ZROZ getting bid >$CL_F in extreme backwardation
yep- time to buy EDV/ZROZ
Stick to TLT & ZROZ
I bought $ZROZ and then followed it up with $TLT '28 LEAPs last week. Long duration seems like mostly asymmetric upside.
ZROZ is going to zero some (newly) poor boomer
PUTS on ZROZ | PIMCO 25+ Year Zero Coupon US Treasury Index ETF Letssgoooo
Im a huge fan, using a partial allocation to LETFs to increase exposure to the market to make room for uncorrelated diversifiers. Bonds, managed futures, gold. Uncorrelated assets offer the opportunity to rebalance on a fixed schedule like a target date fund but with more juice. I use UPRO, GDE, RSST to provide leverage, and add in ZROZ and AVDV and AVNV for long term treasury exposure and intl value exposure.
I get the concern, but I think that’s mixing time horizons a bit. I’m not betting on rates going to zero or making a 20-year debt sustainability call. This is more about whether growth risk shows up and you get any duration compression at all — even a move from the mid-4s to low-4s on the long end matters a lot for ZROZ. Totally possible term premium stays elevated and inflation proves sticky, in which case this trade doesn’t work and I’m wrong. But historically in slowdowns, growth fear has tended to matter more than deficits in the short run. That’s the bet, not that long bonds are “safe forever.”
Look up when ZROZ was created. Look at what happened to it during Covid (not a real recession), then come back and tell me your guess what happens during a real recession. The thank me later
Shorts absolutely do not require day trading. > Extreme interest-rate risk: With a long duration of ~28 years, ZROZ is extremely sensitive to changes in interest rates. If rates rise, or inflation expectations climb, the fund could suffer severe losses—much more than typical bond funds. For example, the −41% in 2022 shows what can happen. https://etfuno.com/p/zroz-explained-when-patience-pays-in-bonds Long duration bonds are very volatile, so this makes less sense all the time
100% ZROZ. I think recession is coming and historically they perform amazing. I also track and predict the recession and its what my model says is the best.
Not to diminish the amazing result (28% annual returns), but for those of us investing in SPXL, UPRO, SSO, etc. today, I think it is worth noting that this success was largely due to investing when the levered ETF had crashed 70-80%. That's the time to go all. Otherwise, it's best to build a portfolio like 40% UPRO, 30% ZROZ, 30% GLDM and target returns that beat the S&P by just a couple percent annualized. Would be interested in OP and others' perspective, but the huge cajones was going all in on massive leverage when everyone though the world was ending. Having cajones today and thinking the result (without a hedged portfolio) will be the same in a decade or two is probably wrong. Wait for the crash and go hedged until then. Even then, worth noting OP suffered a 76% drawdown on a $930k balance in early 2020. He'd made enough from 2010 to 2020 in the levered position to still be ahead vs just having invested in SPY or VOO, but tough to watch $700k evaporate in a month. [https://testfol.io/?s=52fT0SdC39B](https://testfol.io/?s=52fT0SdC39B)
Volatility is still relatively low, but creeping towards mid tier imo. We are still well above historical prices which is bullish for low volatility / decent rise. Money is being made, taco trade is still taco'ing. Normally, you should only hold the portfolio you can stick to, so why are you doubting now? Some signals are flashing red, like junk bonds trending down in value or people taking out short term vix positions to hedge, but other signals are flashing green. Its not rosey cheeks 6% volatility plus strong RSI like a month ago. If youre just investing in the index, id probably say just stay the course. If youre worried about recession, maybe take out some intermediate treasury exposure via IEF or direct purchase of ITTs from treasury direct (or if youre high conviction, LTTs like ZROZ), and if youre worried about stagflation... Wellll you better fight for a raise at work, and maybe learn about managed futures trend ETF offerings like KMLM, CTA, DBMF, AHLT, stuff like that.
ZROZ isn't nearly as liquid, and last time I looked Tastytrade wouldn't let me trade options on it.
Long duration US treasury ETFs - highest duration products (extended duration 25+ year) like EDV, ZROZ returned ~2.5%
TLT is very liquid in both stock and options. Not sure about ZROZ.
ZROZ/TLT calls could work no? Problem is that they have really thin liquidity.
I see your backtest is pretty similar to what I was trying to do - basically have leveraged equities positions that are hedged with other things. My portfolio was loosely based on a bogleheads forum post from hedgefundie (think the post is still around). A problem with these backtests is that they incorporate a lot of historical performance that may not carry into the future. My main criticism of bonds (especially long duration bonds) is that I think bonds will be correlated with equities in the future- so it will not provide the hedge you are looking for. Look at 2022 (when fed was raising rates) and during Liberation Day (when the US was trading like an emerging market). My brief read through ZROZ's site is that it's heavily in long duration treasury bonds. So I'm not optimistic it will actually behave as a hedge when you need it. KMLM is interesting. Seems complicated, but my understanding is it's a "crisis alpha" type fund- tries to generate positive returns during periods of crisis via commodities, bonds (us and ex us), and currencies in a vol-control manner. But one perplexing thing- wonder why it didn't do well this April during the big dip - maybe because it is long USD and it's getting chopped because its mean-reversion vol algorithm is too slow. Sorry this is really long - but I don't think investing triple leveraged ETFs with a hedging strategy is good for me. It's too backwards looking. Even making trades based on 200SMA is driving by looking out the rear view window. I've had better success investing with a 1-5 year outook based on macro expectations.
ZROZ is like a leveraged version of TLT, gives noncorrelation or negative correlation to equities with slightly positive expected return. I actually use EDV for even more negative correlation but for backtesting purposes ZROZ has a longer time period availability. KMLM is much the same, diversification against equity, gold, and treasury bonds exposure with positive expected returns in the long run.
Kind of curious. What is the basis behind KMLM and ZROZ? FWIW, I tried a 1/3 TQQQ, 1/3 UPRO, 1/6 TLT, 1/6 BTAL leveraged ETF portfolio in my HSA and didn't see the same results as the backtest. Maybe I was really bad at executing, didn't sell in 2022, but chose to deleverage early this year. Don't regret doing that b/c I sleep better.
Not EDV or ZROZ? Amateur.....
TQQQ and QLD UPRO and SSO ZROZ, EDV GLD and lower ER variants CTA, KMLM, and DBMF
Pretty simple, just set up a portfolio allocation based on backtesting and personal risk preference. You just regularly rebalance to the target allocation every week or month. QLD ZROZ GLD and CTA are my recommended funds. I would use at least 60-70% QLD and the rest into the other funds.
Check out this book. It was written in 2010 and is backed by academic research. The main point is that leverage when you're young may be appropriate and may actually reduce risk since it provides more diversification across time. # Lifecycle Investing: A New, Safe, and Audacious Way to Improve the Performance of Your Retirement Portfolio Ian Ayres and Barry Nalebuff In my experience, nakedly investing in leveraged index ETFs works until it doesn't. That is, you can have tremendous gains, but then give them all back. You need to have some portion of the portfolio that is a hedge and rebalance a couple times a year. Hedges are long treasuries (ZROZ), gold (GLDM) and potentially managed futures (CTA). Play around with different mixes on testfol.io. Really look closely at the 1970s or 2007/8 and consider your total leverage (amount of UPRO or SPUU) in the mix. It isn't going to be hard to run a leveraged portfolio in times like today. But imagine things going down and staying down for five years or longer. That will happen. It's guaranteed over your investing lifespan. Multiple times. Whatever portfolio you run, you need to believe in it strongly enough by doing the work so that you stick with it when the shit hits the fan. Which it will.
Honestly it seems like rates aren't going to come down that much all things considered so you need to go very very long term for any real gains. Stuff like EDV or ZROZ
QLD 70% GLD 20% ZROZ 10% Much simpler, more diversified across asset classes, with higher expected return. Combine with 200SMA switching strategy and you’ll outperform any portfolio you can come up with in terms of risk-adjusted-return.
Defensive is simply an unleveraged position on equities like QQQ or judt hedges only versus the aggressive position which is used to increase leverage via LETFs such as TQQQ. This is a variation of the very popular SSO GLD ZROZ strategy in r/LETFs but using TQQQ instead and adding in managed futures for even more diversification. 200SMA is used to determine periods of low volatility when price is above (bull runs) and to separate out the bad times with high volatility below the 200SMA and avoiding leverage when below it.
Would I be stupid to enter the market now on the crazy run we are having? I’m holding SQQQ right now and it’s approaching my stop loss. It seems the bull is too strong to overcome but going in at an ATH is always daunting. Planning to run an aggressive growth mix for long term holding (20 years before any major withdrawals) UPRO - 40% VT - 30 ZROZ - 15% GLD - 15%
Risk-on: 33% TQQQ for 99% equity 33% BTC 12% UGL for 24% gold 12% KMLM and CTA 10% ZROZ Risk-off (under 200SMA of QQQ): 25% QQQ 25% UGL 25% CTA and KMLM 25% ZROZ
Instead of concentrating into specific stocks you can just leverage up the underlying index with something like TQQQ. You keep the diversification but now take on extra beta due to leverage. Diversify a little bit with gold and ZROZ but if you have a small account you don’t really need to worry about it too much.
Are you willing to go more aggressive than VTI/VXUS? I am 26 and allocate my portfolio to follow a 200SMA TQQQ strategy with hedges. Above 200SMA of QQQ it looks like 33% TQQQ, 33% BTC, 12% CTA and KMLM, 12% UGL, and 10% ZROZ. Below 200SMA, it becomes 25% QQQ, 25% UGL, 25% CTA and KMLM, and 25% ZROZ. There is more volatility than 100% VOO, but similar max drawdown and far higher risk-adjusted-return.
Above 200SMA of QQQ: TQQQ 66% UGL 22% ZROZ 12% Below 200SMA deleverage into: QQQ 34% UGL 33% ZROZ 33%
Have you tried just hedging it? I just follow the TQQQ 200SMA hedged strategy. 33% TQQQ 33% BTC 12% CTA 12% UGL 10% ZROZ Check for monthly close below or above 200SMA to begin any trade to risk-off. Rebalance monthly. Risk off portfolio: 25% QQQ 25% CTA 25% UGL 25% ZROZ
I’m pretty leveraged compared to other people on here. Having just 1 asset class is not efficient if you just go ahead and test it with something with 2-3 assets. You’ll find the Sharpe will be much lower for a single asset class and sometimes even underperform the ones that are not 100% equities. 32% TQQQ for 96% QQQ 32% BTC 13% UGL for 26% gold 13% CTA 10% ZROZ
Pretty decent, however I would personally just skip the bonds. If bonds are used I would prefer long-dated bonds such as ZROZ for extra volatility and inverse correlation to allow better rebalancing against the equity allocation.
Equities, treasury bonds, gold, and managed futures (optional) You’ll want a diversified bundle of each, so ETFs are your best option. VOO, ZROZ, IAUM, CTA are my suggestions. Perhaps 70% 10% 10% and 10% will be a good allocation for you. You can reduce equity exposure if you want less volatility but this comes at the cost of lower expected return.
TQQQ and BTC hedged with CTA, ZROZ, and GLD.
SSO, BTC, CTA, GLD, and ZROZ at all ages Decrease SSO and BTC as you get older and increase CTA, GLD, and ZROZ. Up to you how much volatility you want.
IAUM - gold CTA/KMLM/DBMF - managed futures TLT/ZROZ - 20+ year treasury bonds
You have an investing account? Learn as much as you can about personal finance, debt, investing, and compounding returns. At your age I would really advocate for a heavily weighted portfolio of equities. Leveraged ETFs if you can stomach it. Something like TQQQ but QQQ if you really don’t want leverage. Hedge with GLD, ZROZ, and CTA. Those are precious metals (gold), long term US treasury bonds, and managed futures respectively. They serve to hedge your main position of equities and provide dry powder when equities are down.
Not quite, the bond ETF is essentially DCA'ing the yield curve. Old bonda roll off as they mature and new bonda at current rates get added on. The net duration exposure can be measured by the "effective duration", this is important because you can buy 20+ yr bonds that have coupons in a fund like TLT, but your effective duration is like 16 years because money gradually gets paid out to the investor. On the flipside, if you bought a fund that buys 20-30yr STRIPS (zero coupon bonds), you get the full duration exposure of the bond maturity, like GOVZ/ZROZ have an effective duration of 27ish yrs, averaging out their 30 yr strips and 20yr and everything inbetween. The ETF closest to what youre looking for is IEF, at 7.05 yrs effective duration. However, as new yields drop, youll be buying new lower yield bonds in IEF, but the existing bonds on IEFs balance sheet will increase in value since they have higher yields. Its all a gradual meshing of old fund contents and new fund contents, thus the "DCA" analogy. Old bonda roll off, new bonda roll in.
Its really hard to say, because inflationary risk is the bond killer (thus the 2022 bond bear market). As rates got lower and lower through the 2010s and then post pandemic, wallstreet was desperate for higher yield fixed income products and loaded up on US government debt at longer maturities to beat the risk free rate. Lo and behold, fiscal policy from covid stimulus where we literally dropped money from helicopters into peoples laps plus supply shocks from the lockdown led to inflation, thus monetary policy tightened. Now, long bonds yielding much lower than the risk free rate had to be severely discounted since you could get a risk free 5.25-5.5% at peak rates in 2024. Without trumps tarrifs, bonds would be looking alot happier right now. The big beautiful bill is a huge looming risk to bonds, as inflation from bad fiscal policy would tarnish the trust in US debt, raising rates and lowering par value of bonds. If inflation doesnt come back, you get a really good deal with these rates. If debt hawks in the senate mediate the deficit, bonds look better. Its hard to say of stuff like TLT or GOVZ or ZROZ or EDV will be good in the near or mid or long term, but there is this spectre of recently being burned on long duration debt thats made walk street and the world less likely to hold super long bonds. That means lower demand and higher yields, but should that faith slowly come back, then there will be upward pressure on bond prices and yields would lower.
If you aren't in ZROZ, GOVZ, or TMF you've got no balls.
You may be right in the long run, but it sounds to me like OP is considering one-week puts. Seems like a good way to get toasted. If you wanted to play the thesis that the US will have a Liz Truss moment, maybe play bearish on TLT, EDV, or ZROZ. That way it is possible to be right for unanticipated reasons, like a comment from JPow, and to avoid some ways of being wrong for unanticipated reasons, like good corporate earnings. SPY is probably starting a new bull market, and is only indirectly related to the thesis. Long-term bonds are directly related to the thesis.
Etfs, yes. TLT, EDV, GOVZ, ZROZ. Risk? ZROZ since 1962 has a volatility of 24% vs SPY with 16%. Long duration debt is super volatile and super sensitive to macro conditions. Max drawdown of -80% (before inflation) after the 70s great inflation, -60% drawdown from pandemic supply shock inflation.
Discount grocery/consumer staple brands (DG, GO, SVV) Mining Gold potentially BTC and other crypto related stocks Depending on whether you think foreign nations will dump treasuries, there's always bond ETFs like TLT and ZROZ VIX There's also The various short leveraged ETFs you could buy like SQQQ or TSLL
Other bond long duration funds did badly since it launched as well like ZROZ, TMF. It's somewhere in between those two volatility wise, but, if it delivers on the investment thesis, a bit better. A powerful diversifier that doesn't need to take up so much space in a portfolio to have a big effect.
They use LEAPs on like 7 year bonds, so the theta decay is almost negligible. You get the better yield at the middle of the yield curve, and it's long volatility. The design of it gives great convexity, and you get longer duration (more capital efficient) exposure than say EDV/ZROZ/GOVZ without sufferjng from volatility decay like with TMF or TYD.
ZROZ/TLT offers potential with falling yields, but prolonged high rates or economic changes pose risks. It's promising, though not a guaranteed success.
Can someone ELI5 why is TLT/ZROZ down, when the SPY is also down???
My only green ETF (ZROZ) now in the red.
Too late to buy 30 yr zero coupon bonds? (ZROZ)
> rebalancing a portfolio of 30% gold, 30% ZROZ, and 40% QLD once a year gave the highest returns and lowest drawdowns. > > TIL those are the only 3 investment options in the world
In backtesting, rebalancing a portfolio of 30% gold, 30% ZROZ, and 40% QLD ***once a year*** gave the highest returns and lowest drawdowns.
>which is similar to buying that bond leverage but without the leverage costs Over time this is correct, but there’s some periods where the two diverge meaningfully. From Aug - November 2010, for example, TYD outperformed ZROZ by over 20% in a matter of weeks. Similarly, from Nov 2011 - end of Oct 2013, TYD returned 3.1 annualized vs (-3.5) for ZROZ. Steepeners can blow out that basis very quickly
Absolutely, this is 100% the best way to use LETFs in my opinion. My long term buy and hold (with quarterly rebalancing) portfolio in my IRA is ~1.6x leveraged, using UPRO to get me more exposure to US beta, and the space that opens up in my portfolio lets me buy long term treasury bonds, international equities, and managed futures funds. I love the concept of NTSX/I/E and RSSB, my only gripe is their target duration on their bond futures. They mostly hit durations similar to IEF (~7yr effective duration). I want longer duration, so I do it myself with UPRO, small cap value funds, managed futures funds (CTA, KMLM, etc), and then I use GOVZ and ZROZ (effectively the same thing, ~26yr effective duration STRIPS) for my long term treasury bonds. Rebalance agnostically, ride into the future, hope for the best. That diversification (to managed futures, bonds, and international) has really helped during this 2025 so far.
Simplify to 34% UPRO, 33% ZROZ, 33% GLD
Do any of you guys have a leveraged ETF portfolio? I was eye TQQQ / ZROZ / KMLM but really trying to time the bottom here, in mango market wondering if I should wait for -20% on Nasdaq first
Why not 50% UPRO, 20% EFO, and 30% ZROZ and chill?
The amount you are investing has nothing to do with what your investing strategy should be… that depends entirely on your goal. If your goal is “long term growth” I would consider a globally diversified portfolio with a factor tilt for greater compensated risk. I would also consider adding some long bond exposure with EDV, ZROZ, or GOVZ which can decrease risk while increasing your risk adjusted returns and possibly your real returns too. Always avoid individual stocks unless you love idiosyncratic risk for some reason.
# **TLDR** --- **Ticker:** TLT/ZROZ (20-Year Treasury ETFs) **Direction:** Potentially Up **Prognosis:** Consider buying, but proceed cautiously. Author is considering investing $15k-$30k depending on upcoming CPI and FOMC announcements. **Current Situation:** Author currently holds SGOV and is looking to allocate funds to TLT/ZROZ based on projected low GDP growth and potential for lower inflation, believing the current yield is attractive. **Recommendation:** Wait for CPI and FOMC announcements before making a significant investment. Don't put all your eggs in one basket!
Yields dropped all along the yield curve due to supply of bonds not going up. More supple = lower price = higher yield. There was an expectation that the treasury would be issuing more bonds, but this has been ameliorated. My long duration bond funds (GOVZ and ZROZ) are up 2.7% today as a result.
Rebalance at set intervals. For growth: 60% SPY 20% ZROZ 10% SGOV 10% IBIT Or for income: 60% XDTE 20% ZROZ 10% SGOV 10% BITO
Big fan of this recommendation, but in a tax advantaged account I think VT + EDV or ZROZ or GOVZ at 90/10 may even be better for the younger crowd. Those options will give you a longer average duration than VGLT. This means they are more volatile and you can hold less % to bonds for roughly the same effective exposure.
Yeah, a 10-20% allocation to long duration bonds (GOVZ or ZROZ is best IMO) along with equities beats slightly on CAGR (only single digit basis point outperformance in CAGR) but has lower max drawdowns. You dont participate as heavily in the bull runs, and you dont participate as heavily in the drawdowns, and in the end you come out on top with a better total and risk adjusted return. Yes, this includes the 1970s and 2022.
Extended Duration Treasuries like EDV, ZROZ, GOVZ. Longer duration to match MY duration... but also due to the (typically) negative correlation to equities.
$ZROZ. 25+ year strips. 27 vs 19 modified duration.
I am painfully aware. Thats why I started buying long treasury bonds, to hedge market crashes. For example, a portfolio holding 80% SPY and 20% ZROZ or GOVZ (25+ yr zero coupon long treasury bonds) only had a drawdown of -32% during the GFC, while 100% SPY dropped -55%. And to boot, this portfolio had a slightly higher total CAGR than just SPY. As such, its risk adjusted return is far better. Going higher on treasury bonds drops the CAGR but improves the risk adjusted performance and reduces the drawdowns. Smart portfolio construction does not involve cash.
Timing the market is a fools game, but bonds can still be useful in an “aggressive” long-term strategy. Consider adding STRIPS to your portfolio, but only if you plan to hold them for 20-30 years. EDV, ZROZ, and GOVT are all solid ETFs for STRIPS exposure.
There are a lot of things to consider. Don't forget that you can also put in 50% or so, reducing both your volatility and returns by half. Another option is to do some hedging. You could put 80% or so in the market, and the rest in uncorrelated assets like BTAL, ZROZ, KMLM or even gold. But the math is against DCAing. It's a good idea if someone is starting out a strategy that they're not sure that they can stick with. However, its benefits are generally psychological.
SCHG is not aggressive. The gold standard of asset pricing is the 5-factor CAPM by nobel laureate Eugene fama and ken french.. The 5 factors which predict/describe portfolio performance and risk are equity (stock exposure), value (cheap price / fundamentals), profitability (gross, top of balance sheet), size (small cao vs large), and reinvestment (reinvesting in company assets aggressively leads to stock under performance). Taking on a growth tilt (SCHG buys growth priced companies, and thus are paying a premium relative to current fundamentals. Expensive) is *less* aggressive, because the future expected return is smaller, as such, efficient markets imply that smaller expected returns should be offered at lower risk. Historically this is the case, as growth stocks, especially large cap growth, have in aggregate had smaller drawdowns than market blend and lower CAGR. There is confusion about this, since growth had a large positive *unexpected return* from 2009-2022. Looking forward, *aggressive* means either buying into cheap value companies with strong profitability (e.g. AVUV is the poster child of this) or taking on some financial leverage, for example, allocating a small quantity of your IRA to something like UPRO (3x S&P). 90/10 VOO/UPRO would be 1.2x daily exposure to the S&P500. Every quarter, you would rebalance to maintain 90/10. Even better, add long treasury bond exposure, so if markets crash fast, there will be a spike in treasuries to offset and rebalance. https://testfol.io/?s=0GtvwzRkJcb Here is an example where a small application of portfolio leverage (overall 1.2x leverage) using VOO/ZROZ/UPRO 70/20/10 has a much larger CAGR and simultaneously a smaller max drawdown than just VOO. Also, using large cap growth funds from the *pre-2009* period really shows you why SCHG's past performance (founded in 2009) is misrepresentative. 2009 onwards has had a large premia for the profitability premia in large caps, and the growth pricing bullrun was great for funds like SCHG and VUG, but with these funds remember that youre simply buying expansive companies priced on future earnings growth. Inherently that entails lower risk since the company isnt going to be riddled with leverage/debt, with insecure industry forecasts, ESG concerns, etc. Buying into riskier companies comes with higher aggressive expected returns, not growth funds.
5 year horizon till retirement but also a long retirement, so lets take a long term view. You should buy the whole US market at least, SCHB or VTI or whatever. Its recommended to hold 20-30% international equities. Im not saying VXUS since its not my favorite. I prefer VEU (intl large and mid caps) + AVDV and AVES/DGS, some dude a few days ago likes LVHI for its lower vol large cap value approach. Whatever you choose, *long term*, international diversification makes the portfolio more robust, hedges country and currency idiosyncracies, and is one of the only free lunches in investing. 10-30% of your portfolio should be long treasury bonds. This will hedge your fear of a market correction or recession. When stocks crash fast, flight to safety assets like long treasury bonds spike up. Historically this method of holding 10-30% long T bonds like ZROZ along with equities like VTI or VT outperforms 100% equities by a lot, with far smaller drawdowns.
1. 401k plans can be accessed early with things like conversion ladders, SEPP plans, etc. Nice financial advisor you've got there... Maybe he isnt familiar with r/Fire. 2. Just because you want to retire early doesnt mean you wont live 30 years after 59.5. Money still needs to be tax free growing in a 401k. Not paying taxes is enormous. 3. If you want more risk, either tilt to risk premia or leverage. You can buy plain VTI and be perfectly efficient with factor exposures, or you can take on more undiversifiable risk with value and small caps and other 5-factor CAPM stuff. Particularly funds like AVUV (small cap value). > As long as I know my money will return to its peak within a few years 4. You either need to get comfortable with this not being true, or you cant be 100% equities. After the start of the great depression, it took 6 years to recover then crashed again 40% and took 9 years to recover. Then after WWII it crashed 40% again and didnt recover for 5 years. Then there were some smaller crashes but in 1968 a downturn started with super high inflation and the US total market dropped nearly -60% by 1974 and it took until 1983 to hit the previous 1968 high after inflation. Thats a 15 year drawback. Then, after the dot com bubble in 2000, it took until 2013 to fully recover on inflation adjusted terms. You need to amend this risk tolerance statement that you need the funds to recover in a few years. It could and will take over a decade eventually. You cannot have the great returns of the equity risk premium without the risk. 5. SCHD is weak sauce, stick with market beta. If you want value exposure, but AVUV. Diversification internationally theoretically produces better risk adjusted returns and hedges US inflation. Inclusion of 10-30% long treasury bond ETFs (not the lame old ass boglehead BND which is a bad diversifier) can help meet your goal of having shorter portfolio drawdowns. Here is a backtest to illustrate. https://testfol.io/?s=bZoXbbtDxU7 ZROZ is a 25+ yr duration treasury bond ETF. These are flight to safety assets. They spike during crashes. The 10-20% inclusion of ZROZ actually increased your longterm CAGR while reducing volatility and max drawdown and time it takes to return to your former peak (measured by Ulcer index. Lower Ulcer is better).
My mix in a tax advantaged account would likely be some blend of light leverage on the S&P500 (like SSO), US small cap value with AVUV, international diversification, a ~20% allocation to long US treasury bonds (hedges equity crash), and maybe a 20-30% allocation to managed futures trend ETFs like KMLM and CTA. This portfolio would be rebalanced regularly. Stocks, MF and Long Ts has made for solid performing portfolios that have rather small drawdowns and great looking performance. For example, over the last 32 years, something simple and US centric like 50/30/20 SPY/KMLM/ZROZ (S&P, managed futures trend, long treasuries) had a CAGR of 10.27%, max drawdown of -20.66%, and a sharpe of 0.82 compared to simple SPY which had a CAGR of 10.55%, max drawdown of -55%, and a sharpe of 0.5. You can ratchet that up, shave 10% off SPY and then add 10% UPRO, total leverage 1.2x, CAGR of 11.54%, max drawdown of -30%.
Inflation/stagflation/inflationrecession is exactly what managed futures strategies are for. Theyre a dog when it comes to taxes since they continually distribute (forced to), but if you use them in an IRA, 401k, or HSA, you can get serious third leg diversification with a stocks/bonds portfolio. Managed futures trend strategies have very very low correlation with both stocks and bonds, and had very good returns during times like 2022, 2016, GFC, dot com. They have a lower realized return than stocks long term, and the tax treatment is a pickle. But, you can make a *very enticing* portfolio by blending in MF ETFs like CTA, KMLM, or DBMF into a portfolio https://testfol.io/?s=c5pv1hNbz0v Note how all the other options had a better max drawdown than just SPY. Juice a lil leverage on top to get back to at least 100% equity exposure, while also having room for managed futures and bonds, it looks great. Even if you dont leverage and just did 45/30/25 SPY/KMLM/ZROZ, your max drawdown is only like 18% and until this very recent huge equity bull run you were beating SPY over the last 30 years. Managed futures are an uncorrelated source of expected returns. Long bonds hedge equity crashes. Equities, even when richly valued, are our long term source of primary expected returns. Managed futures includes exposure to commodities and their trends, so i feel no need for additional exposure to something like gold. Gold by itself tends to lower portfolio max drawdown (its also uncorrelated to stocks and bonds) but it also drags down portfolio total CAGR long term.
Portfolio 2, remove BND, replace with something like EDV, GOVZ, ZROZ, something like that (long treasury bond). Historically for the last 6 decades of data, holding a sliver of the portfolio in long treasury bonds (and rebalancing annually) beats the market on all bases. Better total return, risk adjusted, lower vol, lower max drawdown. 10-30% inclusion. If youre like me and dont want to be less than 100% equities, then simply subtract 10% from VTI and buy something like SSO or UPRO (leveraged S&P exposure). For example, 73/7/10/10 VTI/UPRO/VXUS/GOVZ gives you 104% equity exposure and 10% long treasury bond exposure. Many such combinations are possible here.
*Risk adjusted* That means smaller drawdowns, exactly what he would want. Heres proof: https://testfol.io/?s=2Dy9wKPwR0t FBNDX is a proxy for BND since they have almost the same volatilities, but FBNDX has longer history and also performa better than BND, so this overstates what a BND inclusion would provide. As you can clearly see, the increasing inclusion of ZROZ (a 25+ treasury bond fund) produces much smaller max drawdowns for the overall portfolio when you rebalance annually. This is taking some bet to juice returns. It follows markowitz portfolio theory to add anti-correlated assets with real expected returns to calcel out the volatilities of the other components. Risk of individual portfolio components isnt what matters: its the overall portfolio's risk thats important. A bond index fund like BND is a shitty diversifier (yes, this is the primary weakness of the bogleheads). Its full of corporate bonds (poorer diversifiers) and mostly short duration bonds (poorsr diversifiers).
Its not a wager, its purely a way to historically improve risk adjusted returns. The only required action is rbalancing yearly. For example, 90/10 VTI/ZROZ