The 60/40 is dead. But was interesting was LDDR

Investment Analysis Clubs Macro Economic Trends and Risks
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I don’t disagree with the title of this article, that for longevity the 60/40 balanced portfolio is too conservative. The author says the problem isn’t bonds however, but rather human lifespan. We’re living too long these days, so you need to go heavier on the stocks. And I’ve felt this way for many years as well.

The author then takes a detour into bond ladders, mentioning specifically the ETF $LDDR. This invests in Treasuries from 30 days to 10 years, with a 25 basis point fee, and claims you can get $900 per month per $100,000 invested. And I don’t see how he arrives at that figure.

The ETF $LDDR has a dividend of about 3.8%, which is about a third of what it would need to be for that ROI. What am I missing?

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Your longevity has no impact on investment returns. They’re independent variables

For longer pay out periods (i.e. 40, 50, 60 years) a higher equity allocation produces a higher survivability.

Bonds have much lower long-term returns than stocks and you’re typically not paid for the risk of holding the longer maturities.

A 25 basis point fee will claim about 8% of your wealth over 60 years.

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Snake oil salesman Edelman is withdrawing $500 month of capital from the account to get the $900/month “return”. It’s not sustainable unless you’re growing the portfolio – which you’re not if you’re spending the bond coupon.

{{ … These ETFs also offer a tax advantage to investors. Using the 10-year bond ladder ETF as an example, investors receive $900 a month from a $100,000 investment, and only about $400 is from the bond interest payment that is taxable. }}

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I think I just figured out what this fund is doing. The monthly returns are bond interest, but also return of capital as bonds mature on the ladder. For example, over the 10 year period maturing bonds are never re-invested, the capital is returned to you. So after 10 years it has all been returned to you, with some interest, and your investment falls to zero.

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So this might be a good deal only if you intended to have such a bond ladder but did not want to do the actual work involved with the bond ladder.

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Couple of points

The equity market will crash minimally for the next 1.5 years.

Trump is talking tax hikes but if tax cuts happen the bond market will crash, if bond holders need to question getting paid back.

Deflation is about to enter the market which is a godsend for rich older savers.

The author paying any attention to things? Not the rearview mirror.

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Yeah, I’m expecting that to some degree. 45% non-US equity at the moment.

Stocks crash, bonds crash. Nowhere to hide? (except non-US stocks and bonds, or gold?)

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Now they are talking tax hikes. That does make sense.