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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-27-2007, 10:09 PM   #41
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by wab
We're talking past each other. I'm trying to point out the flaw in your reasoning, but either you're not seeing it, or I'm not seeing your logic.
Sorry, but I dont see the flaw in investing in a product that has a nearly 40 year run of defeating average inflation by 8 percent per year, with very little volatility or loss risk, with a high annual dividend payout that also exceeds average inflation.

Thats not a good inflation hedge?

Really?!?

Why, because its not linked to CPI? Because for brief periods high inflation and presumably concurrent rising interest rates will dampen returns so that they're merely 3-4 points higher than the actual inflation rate? Because 30 years ago we had a high inflationary period the likes of which we're unlikely to ever see again?

You're right...someone has a logic flaw.

As far as this continued twanging of the 'past performance' string...do note that persistence generally beats any predictive approach...but if you insist on saying that a fund that has a track record that runs through bull and bear markets, high and low inflation, stagflation, sideways markets, market crashes, high and low interest rates (et cetera...) as being no sign of future results...

Gosh...what else do you want? Godzilla? Return of the Black Death? Maybe with a little of the Red Death thrown in?

I know you love buying those cpi linked products and getting paid 5% (or less) during the fed mandated neutral inflation periods. Wellesley investors are enjoying nearly that much in current yield, plus a pretty nice capital rate of return...what is it...about 12+% this past year alone? From a bond fund with a little equity thrown in?

Jeez...through me in THAT briar patch.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-27-2007, 10:35 PM   #42
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by Cute Fuzzy Bunny
As far as this continued twanging of the 'past performance' string...do note that persistence generally beats any predictive approach...but if you insist on saying that a fund that has a track record that runs through bull and bear markets, high and low inflation, stagflation, sideways markets, market crashes, high and low interest rates (et cetera...) as being no sign of future results...
Persistence? Are you just making this stuff up as you go along?

2006 was a good year. 12% is not bad at all. 2005, the return was 3.4%. What was inflation that year? Oh, look, it was 3.4%. The fund had a real return of 0%. Some inflation hedge, eh?

Take a look at those vaunted dividends from the fund in the last decade or so. 7%, then 6%, then 5%, then 4%. Oops, persistent trend not looking so good.

I suppose if you want to drive your car by looking in the rear view mirror, that's your prerogative. Just beware that your yield-based shock absorbers are shot. Your fund with 65% nominal bonds might not handle those inflationary bumps are well as she used to....
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-28-2007, 05:13 AM   #43
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by Rich_in_Tampa
Which do you think would be a better choice to hedge inflation: TIPs or a well-diversified income/dividend fund like Wellesley (65:35 bonds:dividend stocks)?

Assume a 3 to 4 year horizon meaning you could hold off withdrawing for that many years of inflation if necessary.
Doc, are you talking about a portion of the portfolio or all of the portfolio? Could you describe your goal a little better? Depending on what you are attempting to do, the answer could be both!

You indicated 3-4 year time horizon. Is that to draw down 4% of the portfolio or 100% of the portfolio (or portion of the portfolio)?

The number of years of the draw down period matters as well as the amount of draw down. I know that you are already aware of these issues... But understanding a few more parameters will help.

All of the assets you listed are inflation hedges in the sense that stocks generally outpace inflation over the long haul. Bonds tend to have inflation considered in the price/coupon. TIPS float based on the CPI-U.

If we have hyper-inflation (and depending on what things have inflated prices)... TIPS may not even help. General Market reponse to Hyper-inflation would be volitile (especially short-term) until investors could get a handle on the situation.

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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-28-2007, 05:25 AM   #44
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Re: Better inflation hedge: TIPs or Wellesley?

i like fidelity fsrrx strategic real return as my inflation hedge. not as volatile as a commodities fund
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-28-2007, 10:22 PM   #45
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Re: Better inflation hedge: TIPs or Wellesley?

Oh dear, once again I think we're stuck on the technicals and all things having to be equal to some formula that allows us to be correct in yet another argument.

I thought hedging against inflation meant making more money, preferably lots more, than the inflation numbers were hitting us with. Not for a quarter, six months or a year, but decade on decade.

You can choose to do it the way Nords and I do, by holding predominately equities and waiting out the volatility, the way many others do by playing "not to lose" by putting most of your money in CPI indexed securities, making 2% over CPI and hoping you die before you run out of money, or some middling strategy where you put 5-50% of your money into the CPI indexed securities, which really buys you insufficient "hedging" of "inflation". I guess its okay during long periods of lousy equity performance and very high double digit inflation, but are you really going to enjoy seeing your pals making 8-12% every year for the decade or two between those periods?

I think not. Obviously I take the high return, long term approach. Others are afraid of "losing" their money to capital depreciation. Others want to try to throw the ball down the lane up the middle of the split, which I dont really get.

Some might want to get a great return with limited "loss" potential, low costs, from a fund thats gone through every thick and thin and still done well. And beat the living hell out of inflation in the process.

Low chance of Godzilla showing up. Sorry.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-28-2007, 11:13 PM   #46
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Re: Better inflation hedge: TIPs or Wellesley?

CFB, you are a very persuasive writer.

Ha
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 11:34 AM   #47
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by Cute Fuzzy Bunny
You can choose to do it the way Nords and I do, by holding predominately equities and waiting out the volatility, the way many others do by playing "not to lose" by putting most of your money in CPI indexed securities, making 2% over CPI and hoping you die before you run out of money, or some middling strategy where you put 5-50% of your money into the CPI indexed securities, which really buys you insufficient "hedging" of "inflation".

[...]

Some might want to get a great return with limited "loss" potential....
Wait a minute. Aren't you the guy who was recently crowing about moving to cash and waiting for the S&P 500 to hit 1000?
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 11:54 AM   #48
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by wab
Wait a minute. Aren't you the guy who was recently crowing about moving to cash and waiting for the S&P 500 to hit 1000?
Hey Buddy, haven't you heard that consistency is the hobgoblin of small minds? Could you please get with the program!

Ha
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 02:21 PM   #49
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Re: Better inflation hedge: TIPs or Wellesley?

Times like this I am really glad I decided to stay out of the hairball-chucking contest.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 02:32 PM   #50
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Re: Better inflation hedge: TIPs or Wellesley?

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Times like this I am really glad I decided to stay out of the hairball-chucking contest.
Lots of fun to watch though!
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 02:33 PM   #51
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Re: Better inflation hedge: TIPs or Wellesley?

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Lots of fun to watch though!
Only the first 500 times. :
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 02:43 PM   #52
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Re: Better inflation hedge: TIPs or Wellesley?

Soooooo - how do we weave into this thread the inflation fighting power of mortgaged/not mortgaged real estate and then for a grand flourish - cap it off with the sweetie who crushes beer cans.

heh heh heh - ?does the price of recycled AL cans outpace inflation?

Still cheering for - Psst Wellesley after all these years. Go team go!
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 02:46 PM   #53
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by brewer12345
Only the first 500 times. :
Hey, we do what we can for edutainment around here.

I tried to spin it a little differently this time by shifting the debate to past performance vs the predictive power of current yields to spice things up a bit....
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 02:57 PM   #54
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Re: Better inflation hedge: TIPs or Wellesley?

This is why I don't ask for investment advice from this board.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 03:13 PM   #55
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Re: Better inflation hedge: TIPs or Wellesley?

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This is why I don't ask for investment advice from this board.
That brings up an interesting point: what is good investing advice?

Some people like to hear the word of god their favorite pundits.

Some people like to hear what fits best into their existing belief system.

Some people like to hear what the historical data says.

Some people like to hear predictions of the future.

Personally, I like to see what the historical data says about the "physics" of investments, and then I try to apply those laws of physics to the current environment and possible future scenarios. If nothing else, this keeps me constantly and easily entertained.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 03:43 PM   #56
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Re: Better inflation hedge: TIPs or Wellesley?

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This is why I don't ask for investment advice from this board.


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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 03:48 PM   #57
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by wab
Personally, I like to see what the historical data says about the "physics" of investments, and then I try to apply those laws of physics to the current environment and possible future scenarios. If nothing else, this keeps me constantly and easily entertained.
I think the only law of physics that applies to investmenting in financial markets is Heisenberg's uncertainty principal.

http://en.wikipedia.org/wiki/Uncertainty_principle

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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 04:14 PM   #58
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Re: Better inflation hedge: TIPs or Wellesley?

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That brings up an interesting point: what is good investing advice?
Now that I have my Curmudgeon certificate and are in the distribution phase of ER - I've been thinking of phasing out DeGaul and the Norwegian widow and moving on into advanced or graduate level:

Chickenheartedness.

I do hesitate at the thought of doing a book given my writing abilities - but perhaps with a good ghost writer.

On the other hand - a man's got to know his limitations - mabbe just frame the certificate and buy that kayak.

heh heh heh heh - 85% Target Retirement, 15% Norwegian widow stocks - unless I start 'thinking and investing'. 8)
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 04:32 PM   #59
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Re: Better inflation hedge: TIPs or Wellesley?

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Originally Posted by Alan
I think the only law of physics that applies to investmenting in financial markets is Heisenberg's uncertainty principal.
That's true to a large extent for capital gains. Human behavior is unpredictable (not just at the quantum level, but at the complexity level).

BUT... "physics" tells you that Wellesley's returns come from a combination of capital gains and yield. SO... if the current yield is at a record low, what does that tell you about future returns?

Three related things: 1) the yield-based shock absorbers are shot so expect more downside volatility, 2) returns will probably be lower on average, 3) returns will be much more dependent on the somewhat whimsical capital gains component.

What's interesting about Wellesley in the context of this discussion (inflation hedge) is that inflation has an almost physics-like impact on bond yields, and bond *values* react in a physics-like manner based on their duration. So, the 65% component of Wellesley that is in nominal bonds makes the fund's behavior pretty predictable in the face of whatever inflation scenario you want to throw at it.
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Re: Better inflation hedge: TIPs or Wellesley?
Old 04-29-2007, 07:01 PM   #60
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Re: Better inflation hedge: TIPs or Wellesley?

Gosh Wab, if the current yield actually WAS at a record low, and you could guess the future, and the future was completely different from the past 35 years...you might have a point.

However, the funds yield is NOT at an all time low, you cant guess the future, and i'd guess the next 35 years to be a lot like the last 35, only all mixed up a bit differently

I also did NOT go into cash to wait for the S&P500 to hit 1000. I went partially into cash to purchase a home and refit it, and when I sell the old one i'll reinvest. Should the S&P hit 1000 between now and then, I suppose I'd be pleased. If it hits 2000, the other million or so i've got in equities will make me pleased.

Maybe one more time i'll suggest you revisit the effects of "persistence"...
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