HappyJack wrote: Sun Sep 07, 2025 2:41 pm
NiceUnparticularMan wrote: Sun Sep 07, 2025 12:42 pmThe math you need to trust is that if you keep the withdrawals the same and keep tracking duration, then you don’t need to worry about the current liquidation value of your ladder of funds either.
The math involved is not hard, but to really visualize what is going on, you need a pretty good visualization of what bond funds are doing in the first place, and then you can hopefully see how your gradually shifting combination of bond funds is operating like a conveyor belt of bonds gradually approaching maturity in the same way your ladder of individual bonds is doing.
Like imagine someone puts a box on one end of a long conveyor belt, and then it eventually drops off the other end.
Now imagine turning that one long conveyor belt into three consecutive conveyor belts, that just pass from one to the next. Put a box on one end, and now it moves the same path through space and time, but at one point it makes a transition from the farthest out belt to the middle belt, and then later a transition from the middle bet to the closest belt.
OK, now imagine lining 20 boxes up along the one long conveyor belt while it is at rest, and starting it moving. Boxes gradually drop off the end until all 20 are gone.
Now imagine doing this with the three conveyor belts. Same deal.
OK, now imagine for some reason you are keeping track of how many boxes are on which conveyor belt at one time. You would start with a lot of boxes on each. For a while, the closest and middle belts would stay the same, but the farthest belt would gradually be losing boxes as it passed them to the middle belt. Eventually, it would run out of boxes. And then the middle belt would start losing boxes.
OK, now imagine the market prices of the boxes change over time, and for fun, imagine that can depend on how far they are away from the end at any given time.
And then for some perverse reason, you decide to track the market value of the boxes on any given conveyor over time. And because the longest conveyor belt is passing boxes off to the middle conveyor belt, you account for that as a “sale” of boxes out of the longest conveyor belt. because the middle belt didn’t gain boxes, though, you don’t account for that as a “purchase” of any boxes.
But you quickly realize this makes no sense. Boxes are just being passed from the longest belt to the middle belt. Nothing is really being “sold”.
So in the end, there is no difference between what happens with your boxes between this three-belt approach and the one long belt approach.
OK, if you simply can’t visualize that, and that means you don’t want to use this approach, I don’t think that is any great harm done per se.
My only real concern is I think some people basically don’t really understand bonds and/or bond funds all that well in the first place. And my concern would be such a person might do something adverse if given a different sort of stress test of their strategy.
Your ability to transform this financial equation into a visual picture is outstanding. Brilliant!
Unless you suddenly start thinking about Lucy and Ethyl working at the chocolate factory as the candy moves down the conveyor belt!
