It’s always very frustrating to see people’s critiques of these models rely on assumptions of high leverage ratios. Moderate leverage (in the realm of 1.5:1) is a mathematical no brainer given return to volatility ratios and borrowing rates. i.e. lever the 60⁄40 portfolio up to the same volatility as the sp500.
I had not heard about this. This does seem cool. But, do you actually want exposure to treasuries right now?
The yields for the 2-30 year treasuries that NTSX invests in are between 0.2 and 1.4% right now. And while returns on treasuries have often been negatively correlated with stocks historically, it seems like that relationship might not hold going forward.
In particular, it’s unclear to me how treasuries could appreciate in value. Unless the yields go negative, they can’t appreciate in price from here by more than a fraction of a percent (or just over 1% for the 20 and 30 yr). And if rates increase, then both stock and treasury prices are expected to drop.
Is the value of holding treasuries just getting access to that extra ~0.8% return? Or is there something I’m missing?
Agreed. The optimal amount of leverage is of course going to be very dependent on one’s model and assumptions, but the fact that a young investor with 100% equities does better *on the margin* by adding a bit of leverage is very robust.
It’s always very frustrating to see people’s critiques of these models rely on assumptions of high leverage ratios. Moderate leverage (in the realm of 1.5:1) is a mathematical no brainer given return to volatility ratios and borrowing rates. i.e. lever the 60⁄40 portfolio up to the same volatility as the sp500.
Practical note: NTSX is pretty cool.
I had not heard about this. This does seem cool. But, do you actually want exposure to treasuries right now?
The yields for the 2-30 year treasuries that NTSX invests in are between 0.2 and 1.4% right now. And while returns on treasuries have often been negatively correlated with stocks historically, it seems like that relationship might not hold going forward.
In particular, it’s unclear to me how treasuries could appreciate in value. Unless the yields go negative, they can’t appreciate in price from here by more than a fraction of a percent (or just over 1% for the 20 and 30 yr). And if rates increase, then both stock and treasury prices are expected to drop.
Is the value of holding treasuries just getting access to that extra ~0.8% return? Or is there something I’m missing?
Yeah, it isn’t great to buy in to *now* now. But is a pretty good proof of concept for running a mutual fund like this.
Agreed. The optimal amount of leverage is of course going to be very dependent on one’s model and assumptions, but the fact that a young investor with 100% equities does better *on the margin* by adding a bit of leverage is very robust.