Author Topic: Vanguard Ext Duration Treasury ETF (EDV) good/bad/ok?  (Read 338 times)

Candyland33

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Vanguard Ext Duration Treasury ETF (EDV) good/bad/ok?
« on: June 02, 2019, 09:54:03 PM »
Anyone has experience with Vanguard Ext Duration Treasury ETF (EDV)?   I'm new to investing and I wanted to start ETF based on Personal Capital and others recommendations. Thank you

CorpRaider

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Re: Vanguard Ext Duration Treasury ETF (EDV) good/bad/ok?
« Reply #1 on: June 04, 2019, 01:27:42 PM »
U could Google it on Bogleheads.  There are several threads discussing it and the potential role it could have in a portfolio.

Andy R

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Re: Vanguard Ext Duration Treasury ETF (EDV) good/bad/ok?
« Reply #2 on: June 04, 2019, 07:29:08 PM »
Thank you to @Tyler for writing this up which explains a lot about LT bonds return potential in the current low interest rate environment.
https://portfoliocharts.com/2019/05/27/high-profits-at-low-rates-the-benefits-of-bond-convexity/

And corresponding discussion on bogleheads
https://www.bogleheads.org/forum/viewtopic.php?f=10&t=282079

Radagast

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Re: Vanguard Ext Duration Treasury ETF (EDV) good/bad/ok?
« Reply #3 on: June 04, 2019, 08:43:47 PM »
I use this for about 5% of our investments (actually ZROZ because that trades free in my employer's broker of choice, but I recommend EDV instead).

First lets cover the risks. It's expected return is lower than that of stocks: subtract inflation from EDV's yield and from the S&P500's 10 year average earnings yield, and then add 0.5% to the S&P earnings yield for an idea of the difference. It is more volatile than the stock market as measured by standard deviation of returns. Stock market crashes typically bottom out in a few years and recover in three times that long, -ish. Long term bond markets can take decades to bottom out, and decades more to recover. For example, the US bond market went downhill for more than 4 decades ending in 1982, and took more than that to recover it's inflation adjust losses (no figure off the top of my head). Depending on the reason for the crash (hyper inflation, lost a war), bonds may never recover, ever. Bonds are more likely to go to absolute zero than stocks are because there is nothing under them. They offer diversification if a country and its currency are viewed as solid while the economy goes through a temporary rough patch, however if the country or currency are in question they may decline at the same time as stocks and more sharply. Even in ordinary times its correlation to the stock market has been more like 0, meaning sometimes it was useful and sometimes not.

Benefits: The most famous is low correlation to stocks, and strongly negative correlation in certain recent crashes. You may be able to sell it at a peak and use that to buy the bottom of a stock market crash. If it reoccurs it could easily make EDV worth the effort. In a continued deflationary environment (faith in the currency becomes increasingly strong, and perhaps faith in the market weakens) it can have huge gains, as Tyler's blog post discusses. If you view this more like a stock holding, in other words your plan for it involves a horizon of 25 years or more (the fund's effective duration or longer), then it is arguably the most appropriate bond choice. If you dollar cost average into it through regular purchases you give yourself lets say a percent greater expected return than its coupon, and dollar cost averaging essentially reduces its duration giving you a greater return to the amount of risk than it appears, and also possibly compared to most investors who are already "haves" while you are a "have not".

Uses:
First try to keep it in a tax advantaged account. I recommend not more than 10% of asset allocation go to this. It is best if your investments are mostly stocks, or you are following an all weather type portfolio. As you get closer to spending down your 'stache, begin adding a safe "barbell" of ibonds, money markets, short term bonds, short term CD's, and similar short term investments. Eventually you should have an equally sized safe barbell (it does seem the actual all weather portfolio does not have a safe end, but I do not know enough about the explanation behind it to know if there is an assumed cash stash somewhere).

CorpRaider

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Re: Vanguard Ext Duration Treasury ETF (EDV) good/bad/ok?
« Reply #4 on: June 05, 2019, 08:05:21 AM »
Good stuff.  I periodically toy with the idea going with long-term treasuries or zeros (rather than intermediate term treas) because of the negative correlation with stocks and you know improved sortinos as part of the portfolio.  So far, even though I have a harder time finding data on periods before like the 1990s where correlations were positive, I've successfully talked myself out of it.  Seems like just the kind of sucker-trade that would be tempting based on data built up over an epic run in bonds/duration and would start working into the "optimized" models of robos right before reversing for a few decades.  Still probably not as bad as "you should be 100% in VTI, it's da' best."
« Last Edit: June 05, 2019, 08:09:01 AM by CorpRaider »